The UK Tax system

Question 1

What are the 5 types of Taxes and who are they paid by?

Answer 1

Income tax, capital gains tax, inheritance tax (by individuals like you and I).

Corporation Tax (by companies).

VAT (by everybody).

Question 2

What is a tax year?

Answer 2

It governs the tax rules and rates for a fixed 12 month period.

Question 3

Are you informed of the Tax rules and rates after or before your earnings?

Answer 3

You are informed of the rules and rates in advance of the tax year during which you will earn your taxable income because the rules and rates will be valid for a fixed 12 month period as they keep on changing.

Question 4

These tax rules and rates are announced by whom?

Answer 4

They are announced via the budget (the Finance Act) by the HMRC.

Question 5

Name the department (treasury) that is responsible for the collection and implementation of tax in the UK.

Answer 5

the HMRC (His Majesty’s Revenue and Customs)

Question 6

All the rules and rates that we’ll be learning for this exam will be from which finance act?

Answer 6

FA22 (Finance Act 22)

Question 7

The tax year for 2022/2023 runs from when to when?

Answer 7

6 April 2022 - 5 April 2023.

Question 8

What is direct taxation?

Answer 8

Taxes that are paid directly to the government, based on income and profit.

Question 9

Give examples of direct taxation.

Answer 9

Income tax, corporation tax, inheritance tax, capital gains tax.

Question 10

What is indirect taxation?

Answer 10

Taxes are collected via an intermediary (middleman) who then passes them on to the government.

Question 11

Give examples of indirect taxation?

Answer 11

VAT, where the consumer pays VAT to a supplies trader (such as the cashier at a grocery store) who then pays it to the government.

Question 12

The management of the treasury (HMRC) is the responsibility of whom?

Answer 12

The management of the treasury is the responsibility of the Chancellor of the Exchequer.

Question 13

Who is the exchequer?

Answer 13

In British history, the Chancellor of the Exchequer is the government’s chief financial minister and is responsible for raising revenue through taxation or borrowing and for controlling public spending.

Question 14

Who are the commissioners and what are their duties?

Answer 14

At the head of the HMRC are commissioners whose duties are:

1) to implement statue law
2) oversee the process of UK tax administration.

Question 15

How is the main body of the HMRC divided?

Answer 15

It is divided into district offices and accounting and payment offices.

Question 16

What are district offices (of the HMRC)?

Answer 16

The commissioner appoints officers of HMRC to implement the day to day work of HMRC.

Question 17

What are the accounts and payments officers (of the HMRC)?

Answer 17

These concentrate on the collection and payment of tax.

Question 18

Explain Tax legislation/statutes.

Answer 18

The government may issue statutory instruments which are detailed notes on an area of tax legislation.

Adherence is mandatory.

They are updated every year by the annual finance act.

Question 19

What are case laws?

Answer 19

This refers to the decisions made in tax cases. The rulings in the courts are binding and so provide guidance on the interpretation of tax legislation.

Question 20

Why is HMRC guidance issued?

Answer 20

It is issued due to the complexity of the legislation.

Question 21

What does HMRC guidance include?

Answer 21

It includes the following:

1) Statements of practice.
2) Extra-statutory concessions.
3) Internal guidance manuals.
4) HMRC website, leaflets and booklets.
5) Detailed technical guidance/

Question 22

Explain statements of practice. (HMRC guidance)

Answer 22

These provide HMRC interpretations of tax law and often provide clarification or detail of how it should be applied.

Question 23

Explain extra-statutory concessions. (HMRC guidance)

Answer 23

Given to specific tax payers to relax the tax legislation. They are often given where undue hardships or anomalies (inconsistencies/infrequencies) would occur.

Question 24

What do you mean by “relax the tax legislation)?

Answer 24

Relaxing tax legislation refers to making changes or adjustments to existing tax laws or regulations in a way that reduces their strictness or eases their impact on taxpayers. These changes can include reducing tax rates, expanding deductions, or introducing exemptions.

Question 25

Explain internal guidance manuals. (HMRC guidance)

Answer 25

HMRC working manuals produced for their staff but they are also available publicly.

Question 26

Explain the HMRC website, leaflets and booklets. (HMRC guidance)

Answer 26

They are aimed at the general public and provide an explanation of various tax issues in non-technical language.

Question 27

Explain the detailed technical guidance. (HMRC guidance)

Answer 27

The HMRC issues Notices and Guidance Notes, aimed at tax agents and advisors, to explain tax issues in more technical detail than is normally required for the general public.

The HMRC Briefs provide detailed technical guidance on a specific tax issue that has arisen during the year.

Question 28

What is Tax evasion?

Answer 28

Any action taken to evade taxes by illegal means.
For example:

a) suppressing information: failing to declare taxable income to HMRC.

b) providing false information: claiming expenses that have not occured.

Question 29

What risk does Tax evasion carry?

Answer 29

It carries the risk of fines and/or imprisonment.

Question 30

What is Tax avoidance?

Answer 30

Any legal method of reducing your tax burden. This term is also used to describe tax schemes that utilise loopholes in the tax legislation.

Examples of Tax Avoidance:

a) Taking advantage of an Individual Savings Account.

b) Making best use of available allowances.

c) Taking advantage of exemptions and reliefs

d) Spouses and civil partners dividing ownership of income producing assets to avoid higher rates of tax and enjoy lower rates of tax.

Question 31

What are the standards of ACCA that an accountant must uphold?

Answer 31

1) Adopt an ethical approach to work, employees and clients.

2) Acknowledge the professional duty to society as a whole.

3) Maintain an objective outlook.

4) Provide professional high standards of service, conduct and performance at all times.

Question 32

What are the 5 fundamental principles of the ACCA’s “Code of Ethics and Conduct”?

Answer 32

1) Integrity
2) Objectivity
3) Professional comnpetence and due care
4) Confidentiality
5) Professional behaviour

Question 33

What is Money Laundering?

Answer 33

A person is engaged in money laundering where they:

1) Conceal, disguise, convert, transfer, remove (from the UK) criminal property.

2) Enter into/become concerned in an arrangement which they know or suspect facilitates the acquisition, retention, use or control of criminal property.

3) Acquire, use or have possession of criminal property.

Question 34

Are proceeds of tax evasion considered as criminal property?

Answer 34

Yes.

Question 35

Who is an MLRO?

Answer 35

Money Laundering Reporting Officer.

Question 36

Suspicions of money laundering need to be reported to whom?

Answer 36

Suspicions of money laundering need to be reported to the MLRO who then decides whether a report should be made to the NCA. (National Crime Agency)

Question 37

Should a client be advised that a report has been made?

Answer 37

No, as this would be considered as an offense of “tipping off”.

Question 38

What are the consequences of dishonest conduct of tax agents?

Answer 38

1) Civil penalty of up to £50,000.

2) HMRC may publish details of the penalised tax agent in certain circumstances.

3) HMRC may have rights of access to all working papers of a dishonest agent.