Objectives of tax

Question 1

Which one of the following options is not an example of the government using the tax system to manage the economy?

a) Allowing income from ISAs to be exempt.

b) The annual increase of the personal allowance.

c) Increasing the tax on whisky.

d) Allowing gift relief on charitable donations.

Answer 1

b

The government manages the economy by encouraging or discouraging certain behaviour, which is what the policies in the other choices aim to do. The personal allowance is offered to all individuals of all ages, so does not shape people’s behaviours.

Question 2

In the Budget this year, the government increased the main rate of tobacco duty to £3.52 for a packet of 20 cigarettes.

The impact of this decision is best represented by the:

a) Efficiency principle.

b) Regressive principle.

c) Ability to pay principle.

d) Value principle.

Answer 2

b

An increase in tobacco duty will impact individuals with lower incomes more than those with higher incomes, as the tax paid as a percentage of income is higher for lower income individuals. This is an example of a regressive tax.

Question 3

True or False,

A taxpayer may be able to appeal against an information notice

A taxpayer may be able to appeal against an inspection notice

Answer 3

TRUE

FALSE

Question 4

Select whether the statements below are true or false.

HMRC offers a Business Payment Support Service to taxpayers to help them meet payments if they are struggling. This may allow taxpayers to spread payments over longer time periods without incurring additional penalties and interest.

HMRC may only request information from third parties if they have First-Tier tax tribunal approval.

Answer 4

False.

False.

The Business Payment Support Service may allow taxpayers to spread payments over longer time periods without incurring additional penalties, however interest will still apply.

HMRC may also request information from third parties with taxpayer approval.

Question 5

Joel submitted his 2021/22 electronic tax return on 30 January 2023. As he is having trouble with his cash flow, he decides not to tell HMRC about £50,000 of profits on one of his rental properties and instead moves all of the income to a secret bank account in Jersey.

HMRC must give notice of a discovery assessment by:

a) 31 January 2024

b) 31 January 2029

c) 31 January 2042

d) 5 April 2042

Answer 5

d

If HMRC discover that full disclosure was not made and there is a loss of tax, the HMRC is allowed to collect more tax from the taxpayer. As Joel submitted his tax return on time but deliberately did not disclose some income, a discovery assessment can be made by HMRC up to 20 years from the end of the TAX YEAR to which the return relates.

Question 6

Select whether the statements below are true or false.

HMRC may only select tax returns for compliance checks where they suspect that tax has been underpaid.

HMRC are only able to open a formal enquiry once per tax return.

Answer 6

False

True

HMRC can select tax returns for compliance checks at random and also where they suspect tax has been underpaid.

HMRC only have one opportunity to open a formal enquiry.