taxation and finance Flashcards
reasons for taxation
government revenue - in order for a country to function a government must raise income through tax they collect tax to fund daily running of country
redistributation of wealth- takes money from the higher earners through paye system and redistributes it to the less well off through social welfare
discourages consumption- places higher tax on products that are unhealthy. makes them more expensive and discourages citizenss from buying them eg tobacoo alcohol
VAT vs corporation tax
VAT- a tax on goods and services paid by both households and businesses. Some g/s are exempt from tax and not all g/s have the same rate applied. standard rate is 23%. Businesses pay and collect vat.
CORPORATION-tax on firms profits. standard rate is 12.5%. Low compared to other EU countries this is what attracts foreign direct investment to Ireland.
3 taxes paid by households and businesses
Excise duty- tax paid on certain goods such as alcohol and tobacco products it is used by the government to discourage consumption of unhealthy products.
Customs duty- a tax levied on goods imported to Ireland from countries outside the EU. Makes the imported goods more expensive and encourages consumers to purchase more goods grown or manufactured inside the EU.
3 short term sources of finance
Bank overdraft- a facility where a bank allows its customers who have a current account to withdraw more money from their account than they have in it up to an agreed limit. used by b to pay wages and salaries and used by h to pay for everyday items like food and electricity
Credit card-a customer pays for goods and services using their credit card at the point of sale. the credit card firm pays the store or supplier and the customer repays the credit card company within an agreed period of time. MasterCard and visa
Define accrued expenses
when a supplier of services allows the b/h to use their services and pay later eg electricity and gas. the supplier invoices the b/h at the end of the period and sets the date when the payment must be made.
Define factoring
when a business sells its invoices (debtors) to a factory firm (debt collection business) at a discounted price. The factory firm then collects the amount owed directly from the debtor and makes a profit.
medium-term loan vs leasing
MEDIUM TERM- borrower takes out a loan from a financial institution and repays it with interest at regular intervals over a period between 1-5 years. interest rates may be fixed or variable. it is called a personal loan for a household.
LEASING- b/h enters into a lease agreement with the owner of the asset. the lessee makes regular payments to the lessor for an agreed time while using the asset.
standing order vs direct debit
STANDING ORDER- an instruction to the bank by the account holder to pay a fixed amount on a regular basis to a named individual or organization eg a mortgage payment
DIRECT DEBIT- an instruction to the bank by the account holder to pay a variable amount on a regular basis to a named individual or organization eg paying a gas bill.
list two similarities and differences between managing a household and business finances
SIMILARITIES-
record-keeping- up-to-date and accurate financial records must be maintained to monitor finances and keep tax affairs in order.
sources of finance- b/h use common short medium and long-term sources of finance eg bank overdraft and hire purchase
DIFFERENCES -
financial planning- financial projections are more detailed for a business than for a household eg a business prepares a detailed business plan to obtain finance from a financial institution.
tax- businesses can claim the costs of finance against their profit, thus reducing their tax bill. they also have more dealing with the revenue commissioners eg they submit vat returns.
Factors a b/h should consider when deciding on a source of finance
PURPOSE OF FINANCE- the source of finance chosen should match the time frame of the item being purchased eg a short-term source of finance should be used for a short-term want or need.
SECURIT (COLLATERAL) REQUIRED-h/b may need to provide an asset as security in order to obtain finance eg deeds of a property to obtain a mortgage. in the event that repayments are not met as agreed, the lender takes ownership of the asset.
COST- b/h should obtain the cheapest source of finance available debt finance such as medium-term loan requires monthly repayments with interest charged. equity finance and retained earnings do not involve expensive repayments.
TAX IMPLICATIONS- only certain sources of finance may be tax deductible for the b/h. this means that the tax paid to the revenue commissioners is reduced. eg interest charged on a medium-term loan is tax deductible whereas dividends paid to shareholders are not.
EXPLAIN THE DIFFERENCE BETWEEN SHORT MEDIUM AND LONG-TERM SOURCES OF FINANCE
short term sources of finance can be repaid within one year, medium-term sources of finance can be repaid between one and five years and long-term sources of finance can be repaid after more than five years. examples credit cards, medium-term loan/personal loan, and savings
Define premium
Fee paid for insurance. It includes basic premium plus any loading/discounts that may apply
Define loading
Additional charge because of extra risk in certain circumstances eg driver with a provisional license
Define no claims bonus
Reduction in premium if no claim has been made since the last renewal daye
list 3 principles of insurance
principle of indemnity
principle of utmost good faith
principle of insurable interest
