Short Word Q's

Question 1

Tax classical system, 1965

Answer 1

On income tax and on profits
So company’s and owners paid corporation tax- twice- double taxation
Less incentive for new bus start up
Doesn’t recognise relationship between company and shareholders
Shareholders also taxed- double
But benefits- more revenue for gov and large dividend allowance

Question 2

Badges of trade

Answer 2

Length of ownership- long ownership less likely to be trade- investment
Frequency- regular transactions of sale of goods- trading income vs capital gains

Question 3

Entrepreneurs relief

Answer 3

Introduced following capital gains reforms
Provide relief for entrepreneurs selling their businesses
Up to £10,000,000 10% lifetime

Question 4

Imputation corporation tax

Answer 4

Tax on profits is imputed to shareholders- given tax credit part of the tax- avoids double tax
Used in U.K. before dividend allowance

Question 5

Capital gain def

Answer 5

Increase in wealth to an individual or company because of selling asset
Charged on net gains (less incidental cost of disposal and original cost)
Annual exemption 11100 same as income
Can carry forward losses to offset against profits next tax year
Charities exempt

Question 6

Chattel

Answer 6

Tangible moving property
Wasting chattels exempt from cgt if useful life less than 50 yrs
Chattels exempt if gross proceeds less than £6000

Question 7

Research and development treatment

Answer 7

R+D incentivised with 230% allowance for expenditure- not capital
Aims to encourage investment in tech
Sme’s in loss can claim cash

Question 8

Hypothecated tax

Answer 8

Designed to provide specific benefits
E.g graduate tax- used to fund higher education
Advantages- clear to public where their money going- less scrutiny - viewed as fair
Disadvantages- concerns where money going- right amounts e.g grads low tax- not enough for education

Question 9

Realised capital gains tax

Answer 9

Date capitals gains are received following sale is when recognised in accounts
Prevents recognising when the gain hasn’t been received- guessing- manipulation - underestimate- less tax

Question 10

Types of company tax systems

Answer 10

Classical- company/shareholder relationship ignored, pay tax on income and capital gains- double taxation

Imputation- used in U.K.
Tax imputed- shareholders have tax relief

Split rate- distinguishes distributed and retained earnings

Question 11

Ads and dis of registering vat

Answer 11

Ads
Credibility to bus, forces accurate accounts, recover input tax

Dis
Customers who aren’t registered can’t claim back
Admin burden

Question 12

Advantages of implementing capital gains

Answer 12

Taxes wealth of individuals and companies as well as income
Meet equity principle
Equality- redistribution of wealth through tax
Increases gov revenue

Question 13

What nic’s used for

Answer 13

Nhs
Pensions
Unemployment/sick benefits
Technically not a tax
Argument- should be merged with income tax?

Question 14

NIC type of rate

Answer 14

Flat % out of salary - paye
Used to be like insurance for services
Regressive

Question 15

Introduced 2014

Answer 15

Allowance for business and charities to reduce nic by 3000

Means small businesses may not have to pay

Question 16

Vat

Answer 16

Indirect tax on products/services

Manufacture wholesale and retail

Question 17

Vat collection

Answer 17

Multistage- at each of production and distribution

Collected based on value added at each stage e.g input and output

Question 18

Example of vat debate

Answer 18

Jaffa cakes
Cakes and biscuits- no vat
Chocolate biscuits charged
Tribunal

Question 19

Tax planning

Answer 19

Least amount of tax payable whilst considering cash flow

Question 20

Tax compliance when:

Answer 20

Seek to comply with law in all countries operate
Full disclosure of relevant info
Seek to pay right amount but no more at the right time

Question 21

Tax avoidance- when discouraged

Answer 21

legal way of minimising tax liability

Exploits loopholes
Less tax is paid than expected in one country it operates in
Tax paid on profits declared in a country where they haven’t been earnt- tax havens
Paid later than the profits

Question 22

Tax evasion

Answer 22

Illegal to reduce tax bill

E.g cash in hand- micro crime

Question 23

Manipulation example

Answer 23

Consultant- to hide employment for tax advantages

Employment vs self employment

Question 24

Aim of environmental tax

Answer 24

Change behaviour to have a positive impact on climate change
Raise revenue- used to cut taxes in other areas

Question 25

Examples environmental taxes

Answer 25

Air pollution
Need trading permit
But on fuel- politically unacceptable

Question 26

How does environmental tax work?

Answer 26

Increases private costs of production with negative impact
Pollution=social cost to society
Provide incentive for positive environmental action - tax hypothecation