Introduction to Taxation

Question 1

What does the UK tax system encourage?

Answer 1

1. Individual saving habits
2. Charitable donations
3. Entrepreneurs and investors

Question 2

What does the UK tax system discourage?

Answer 2

1. Motoring
2. Smoking
3. Drinking

Question 3

Define direct taxes

Answer 3

Paid by those who generate funds

Question 4

Define indirect taxes

Answer 4

Relate to consumption

Question 5

Define progressive taxes

Answer 5

Increase with income

Question 6

Define regressive taxes

Answer 6

Decrease with income

Question 7

Define unit taxes

Answer 7

Calculated as a flat rate per item

Question 8

Define value taxes

Answer 8

Added to the percentage value of goods or services

Question 9

Define income tax

Answer 9

Payable by individuals on their earnings

Question 10

Define capital taxes

Answer 10

Paid on the disposal of capital assets

Question 11

Define expenditure taxes

Answer 11

Paid by those who incur expenditure

Question 12

Define ability to pay principle

Answer 12

Tax should be based on ability to pay

Question 13

Define benefit principle

Answer 13

Tax should be based on the benefit that the taxpayer receives

Question 14

Define neutrality principle

Answer 14

Tax should not distort choice

Question 15

Define equity principle

Answer 15

Tax should be fair and just

Question 16

Define efficiency principle

Answer 16

The cost of collection should be less than the tax raised

Question 17

Who pays income tax?

Answer 17

All individuals who are either employed or self-employed

Question 18

How is income tax collected from the employed?

Answer 18

PAYE

Question 19

Who pays National Insurance Contributions (NICs)?

Answer 19

1. All individuals who are either employed or self-employed

2. Businesses in relation to their employees

Question 20

Who pays Capital Gains Tax (CGT)?

Answer 20

Payable by individuals on the disposal of capital assets

Question 21

Who pays corporation tax?

Answer 21

Payable by companies on all their income and gains

Question 22

Who pays Value Added Tax (VAT)?

Answer 22

Payable by the final consumer on most goods and services

Question 23

When does the tax year run from and to?

Answer 23

6 April to following 5 April

Question 24

When does the financial year run from and to?

Answer 24

1 April to 31 March

Question 25

Do individuals pay tax based on the tax year or financial year?

Answer 25

The tax year

Question 26

Do companies pay tax based on the tax year or financial year?

Answer 26

The financial year

Question 27

Who appoints Commissioners?

Answer 27

The Queen

Question 28

What are the duties of Commissioners?

Answer 28

1. To implement statute law

2. To oversee the process of UK tax administration

Question 29

Who appoints Officers of Revenue and Customs?

Answer 29

The Commissioners

Question 30

What are the duties of Officers of Revenue and Customs?

Answer 30

1. To work in district offices covering all areas of the UK
2. To implement the day-to-day work of HMRC
3. To act as a point of contact between HMRC and taxpayers

Question 31

What are the responsibilities of HMRC?

Answer 31

1. Collecting and administering income tax, capital gains tax, national insurance contributions, corporation tax, and value added tax
2. Paying and administering universal credit, tax credits, and child benefit
3. Collecting repayment of student loans
4. Ensuring adherence to minimum wage rules
5. Protecting society from tax fraud, smuggling, and illegal importation of drugs

Question 32

Define the Making Tax Digital for Businesses project

Answer 32

1. A HMRC project designed to provide businesses with a modern, streamlined system to keep their tax records up to date and provide information to HMRC
2. Will initially only apply to businesses for VAT purposes and only if their turnover is above the annual registration limit

Question 33

What are the features of tax legislation?

Answer 33

1. Are law and therefore adherence is mandatory
2. Updated each year by the Finance Act
3. Include statutory instruments

Question 34

What are the features of case law?

Answer 34

1. Refers to the decisions made in tax cases brought before the courts
2. Often the case challenges current tax legislation or argues a certain interpretation of the tax law should be applied
3. These rulings are binding and therefore provide guidance on the interpretation of tax statutes

Question 35

What are HMRC’s main statements of guidance?

Answer 35

1. Statement of practice
2. Extra-statutory concessions
3. Internal guidance manuals
4. Press releases
5. Leaflets

Question 36

What is the purpose of HMRC’s statement of practice?

Answer 36

To provide HMRC’s interpretation of tax law by providing clarification or more detail on how it should be applied

Question 37

What is the purpose of HMRC’s extra-statutory concessions?

Answer 37

1. Given to tax specific taxpayers to relax the tax legislation where undue hardship or anomalies would otherwise occur
2. However, their legality was successfully challenged in 2005, so they are gradually being withdrawn or made law

Question 38

What is the purpose of HMRC’s internal guidance manuals?

Answer 38

Produced for their staff but are also available to the public

Question 39

What is the purpose of HMRC’s press releases?

Answer 39

Provide details of a specific tax issue that has arisen in the year

Question 40

What is the purpose of HMRC’s leaflets?

Answer 40

Aimed at the general public to provide explanation of various tax issues in non-technical language