The UK TAX System Flashcards
1
Q
What are purposes of taxation?
A
- economic
- social justice
2
Q
What is the economic purpose of taxation?
A
- the system of taxation and spending by government and its impact on the economy of a country as a whole
- taxation policies are used to influence many economic factors such as inflation, employment levels and imports/exports
- they are also used to influence the behaviour of business and individuals
- as government objectives change, taxation policies are altered
3
Q
What current UK tax system encourages?
A
- individual saving habits by offering tax incentives on savings income nil rate band
- charitable donations by offering tax relief
- entrepreneurs and investors by offering tax relief for investments in specified schemes
- carbon neutral motoring by offering tax incentives on electric cars
4
Q
What current UK tax system discourages?
A
- motoring using petrol and diesel by imposing fuel duties
- smoking and drinking alcohol by imposing significant taxes on cigarettes and alcoholic drinks
- environmental pollution by imposing a variety of taxes such as landfill tax, climate change levy and linking CO2 emissions to the taxation of company cars
5
Q
What is social justice purpose of taxation?
A
- the type of taxation structure imposed has a direct impact on the accumulation and redistribution of wealth within a country
6
Q
Main taxation principles
A
- progressive taxation
- regressive taxation
- proportional taxation
- ad valorem principle
7
Q
What is progressive taxation principle?
A
- as income rises, the proportion of tax raised also rises
- income tax is an example or progressive tax
8
Q
What is regressive taxation principle?
A
- as income rises the proportion of tax paid falls
- for example, the tax on a litre of petrol is the same regardless of the level of income of the purchaser
- this is a regressive tax as it represents a greater proportion of income for a low income earner than a high income earner
9
Q
What is proportional taxation principle?
A
- as income rises the proportion of tax remains constant
- for example, corporation tax is at 19% regardless of the company’s level of income and gains.
10
Q
What is ad valorem principle?
A
- a tax calculated as a percentage of the value of the item.
- for example, 20% VAT on most goods sold in the UK``
11
Q
Types of the taxation?
A
- income tax
- national insurance contribution (NICs)
- capital gain tax
- inheritance tax
- corporation tax
- value added tax
12
Q
What is income tax?
A
- payable by individuals on their taxable earning and investment income
13
Q
What is national insurance contribution?
A
- payable by individuals who are either employed or self-employed on their earnings
- also payable by businesses in relation to their employees
14
Q
What is capital gains tax?
A
- payable by individuals on the disposal of certain types of capital assets
- capital assets include land, buildings and shares, and can also include smaller times such as antiques
15
Q
What is inheritance tax?
A
- payable by personal representatives on the value of the estate of a deceased person
- also payable in respect of certain gifts during an individual’s lifetime
16
Q
What is corporation tax?
A
- payable by companies on their income and gains
17
Q
What is added tax?
A
- payable on the supply of goods and services by the final consumer
18
Q
What is direct taxation?
A
- the taxpayer pays direct taxes directly to HMRC
- direct revenue taxes are based on income/profits and the more that is earned/received, the more tax is paid. Examples include income tax and corporation tax
- direct capital taxes are based on the value of assets disposed of either through sale, gift or inheritance. Examples include capital gains tax and inheritance tax
19
Q
What is indirect taxation?
A
- is collected form the taxpayer via an intermediary such as a retail shop
- the intermediary then pays over the tax collected to HMRC
- an example of an indirect tax is VAT. The consumer (taxpayer) pays VAT to the supplier (intermediary), who then pays it to HMRC
20
Q
What is HMRC?
A
- is the government department that controls and administers all areas of UK tax law
21
Q
Purpose of HMRC?
A
- make sure that the money is available to fund the UK’s public services
- help families and individuals with targeted financial support
22
Q
Main duties of Commisssioners/heading up HMRC
A
- to implement statute law
- to oversee the process of UK tax administration
23
Q
Who is staff working for HMRC?
A
- Officers of Revenue and Customs
24
Q
How are the taxpayers filing the tax return?
A
- online and pay by electronic means
- companies have to file returns and pay tax electronically
- individual taxpayers can still send their returns and payments by post if they wish
- under self-assessment the responsibility for reporting the correct amount of taxable income and paying the correct amount of tax is delegated to the taxpayer to self-assess.
25
Q
Can the Officers of Revenue and Customs request the calculation of tax payable?
A
Yes, on income reported for individual taxpayers (but not companies)
26
Q
What are the sources of tax law?
A
- statements of practice
- extra-statutory concessions
- internal HMRC manuals
- detailed technical guidance
- HMRC website, leaflets and booklets
27
Q
What is the statute law (tax legislation) ?
A
- this is law and therefore adherence is mandatory
-tax legislation is normally updated each year by one annual Finance At that follows from the proposals made by the Chancellor of the Exchequer in his annual Budget statement - statutory instruments are issued where detailed notes are required on an area of tax legislation
28
Q
What is case law?
A
- refers to the decisions made in tax cases brought before the courts
- often the case challenges current tax legislation or argues a certain interpretation of the tax law should be applied
- these rulings are binding and therefore provide guidance on the interpretation of tax legislation
29
Q
What is HMRC guidance?
A
- as the tax legislation can be complex to understand and open to misinterpretation, further guidance is issued by HMRC in order to:
- explain how to implement the law
-give their interpretation of the law
30
Q
What are main types of guidance of HMRC?
A
- statement of practices
- extra-statutory concessions
- internal HMRC manuals
- HMRC website, leaflets and booklets
- Detailed technical guidance
31
Q
What is statement of practice?
A
- this provides HMRC’s interpretation of tax law and also provides clarification or detail of how rules should be applied
32
Q
What is extra-statutory concessions?
A
- allows a relaxation of the strict letter of tax law in certain circumstances
- confirms that HMRC will apply a tax law to a specific group in a more favourable way than another possible interpretation, to avoid undue hardship, unfairness, or an illogical result
- HMRC publishes current ESCs and all taxpayers in the stated situation can rely on these
- it is government policy for the content of issued ESCs to eventually be withdrawn or enacted into law
33
Q
What is Internal HMRC manuals?
A
- own manuals, produce for their staff, give guidance on the interpretation of the law, available to public too
34
Q
What is HMRC website, leaflets and booklets?
A
- aimed at the general public and provide explanations of various tax issues in non-technical language
35
Q
What contains detailed technical guidance?
A
- HMRC issue Notices and Guidance Notes, aimed at tax agents and advisers, to explain tax issues in more technical detail than is normally required by the general public
- HMRC Briefs provide detailed technical guidance on a specific tax issue that has arisen in the year
36
Q
What are double taxation agreements?
A
- known as double taxation treaties
- such treaties take precedence over domestic UK tax law and either:
. exempt certain overseas income form tax in the UK
. provide relief where tax is suffered in two countries on the same income
-where no such treaty exists, the UK system still allows for relief to be given where double tax is paid
37
Q
What is tax evasion?
A
- any action taken to avoid or reduce tax by illegal means
- is an illegal activity; and carries a risk of criminal prosecution (fines and/or imprisonment)
38
Q
What are the main forms of tax evasion?
A
- suppressing information
(failing to declare taxable income to HMRC) - submitting false information
(claiming expenses that have not been incurred)
39
Q
What is tax avoidance?
A
- is using the taxation regime to one’s own advantage by arranging your affairs to minimise your tax liability This can also be referred toas tax planning
- it is legal and does not entail misleading HMRC
- the term is also used to describe tax schemes that utilise loopholes in the tax legislation
40
Q
What ACCA expects from its members regarding professional and ethical guidance?
A
- adopt an ethical approach to work, employers and clients
-acknowledge their professional duty to society as a whole - maintain an objective outlook
- provide professional, high standards of service, conduct and performance at all times
41
Q
What are five fundamental principles?
A
- objectivity
- professional competence and due care
- professional behaviour
- integrity
- confidentiality
OPPIC
42
Q
What means Objectivity?
A
- members should not allow bias, conflicts of interest or the influence or others to override objectivity
43
Q
What is professional competence and due care?
A
- to maintain professional knowledge and skills to ensure that a client/employer receives competent, professional service based on current developments
- member should be diligent and act in accordance with applicable technical and professional standards when providing professional services
44
Q
What means professional behaviour?
A
- members should refrain from any conduct that might bring discredit to the profession
45
Q
What mean intergrity?
A
- members should act in a straightforward and honest manner in all professional and business relationships
46
Q
What mean confidentiality?
A
- should not disclose any such information to third parties
47
Q
Advising on taxation issues
A
- member has duties and responsibilities towards both the client and HMRC
- never be knowingly involved in tax evasion
48
Q
What are the examples of tax irregularity?
A
- not declaring income that is taxable
- claiming reliefs to which they are not entitled
- not notifying HMRC where they have made a mistake giving rise to an underpayment of tax, or an increased repayment
49
Q
Steps once error has been discovered?
A
- member should explain to the client the requirement to notify HMRC as soon as possible
- member must write and explain the potential consequences, whether they should stay working for client
- should cease to act for the client, must write to HMRC, must consider their position under the Money Laundering Regulations
50
Q
What is Money Laundering?
A
- used for offences including benefiting from or concealing the proceeds of a crime
- company needs Money Laundering Reporting Officer within the firm
-MLRO will decide whether a transaction should be reported to National Crime Agency
51
Q
How much is the civil penalty of tax agents?
A
- up to £50,000
- if more than minimum £5,000 HMRC may publish details of the penalised tax agent
