Topic 1 Flashcards
What are the principles of modern tax system?
▪ Equity – to be fairly levied between one taxpayer and another
▪ Efficiency – cheap and easy to collect
▪ Economic impact – considers the way in which a tax should be collected
What are the 3 tax rate structure?
- Progressive taxes
These take an increasing proportion of income as income rises. The more you earn the higher the rate of tax. - Proportional taxes
These take the same proportion of income as income rises. The rate will stay the same regardless of the level of income - Regressive taxes
These take decreasing proportion of income as income rises. The rate decrease when income exceeds a threshold.
what is indirect tax and it’s example
Definition
Tax is imposed on one part of the economy with the intention that the burden is passed on to another.
Tax is imposed on the final consumer of the goods or services
Examples:
Ad valorem taxes – e.g. sales tax
Property taxes on rental profits
What is the definition of tax evasion
Tax evasion is the illegal manipulation of the tax system to avoid paying tax.
What is tax avoidance?
Tax avoidance is tax planning to arrange tax affairs, within the scope of the law, to minimise the tax liability.
What is direct tax and examples?
Definition:
Tax imposed directly on the person or enterprise required to pay the tax.
Examples:
Wages – income tax, national insurance
Profits – trading income (sole trader)/ business tax (partnerships)/ Corporation tax (ltd)
Gains – tax on profits generated by the disposal of an asset
Wealth – inheritance tax- can pay when someone dies or you can also apply for it if you give a gift to someone whilst still alive
What are some some of the methods used to prevent tax avoidance and evasion
▪ Reducing the opportunity by taxing as much as possible at the source e.g. salary
▪ Simplifying tax structure- digitising, fines, penalties
▪ Auditing tax returns and payments- HMRC can audit a number of years after you’re finished
▪ Developing good communication between tax authorities and enterprises- newsletter (regarding changes, emails, webinars, twitter
▪ Changing social attitudes towards evasion and avoidance
▪ Reducing lost revenue by reviewing the penalty structure for not submitting or paying on time e.g. fines and interest
What is the conceptual framework approach?
Identify (threats)–> Evaluate (How significant are the threats)—> Mitigate/Address issues (How do we reduce this threat)
- identify threats to compliance with the fundamental principles;
- evaluate the significance of the threats identified; and
- apply safeguards, when necessary, to eliminate the threats or reduce them to an acceptable level.
In determining whether any threats are at an acceptable level,
In determining whether any threats are at an acceptable level, you should consider whether a reasonable and informed third party would be likely to conclude, weighing all the specific facts and circumstances available to you at that time, that compliance with the fundamental principles isn’t compromised. You should use professional judgment in applying this conceptual framework.
What is GAAR
Neutralizing the advantage/loophole and is also a quick response
Previously, tax avoidance has been targeted with specific legislation. As a further deterrent, a general anti-abuse rule has been introduced.
This will counteract tax advantages (such as increasing a deduction or decreasing income) arising from tax arrangements that are abusive (those arrangements which cannot be regarded as a reasonable course of action).
What are the five fundamental ethical principles set out in our ACCA Rulebook?
Objectivity Professional Competence & Due care Professional Behavior Integrity Confidentiality
What is Objectivity in the ethics principle?
not allowing bias, conflicts of interest or undue influence of others to override professional or business judgement
E.g. tax return for divorced husband and wife. The solution would be to have separate teams look after each
What is Integrity in the ethics principle?
being straightforward and honest in all professional and business relationships
What is Professional behaviour in the ethics principle?
Members should comply with relevant laws and regulations and should avoid any action that discredits the profession.
Even something as drink driving, cheating in an exam
What is Confidentiality in the ethics principle?
Members should not disclose information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose, and information should not be used to personal advantage.
Example; If the client hasn’t disclosed errors or omissions, you would advise the client to amend the returns.
If the client refuses to amend the return, you would inform the client you will not act for them going forward and notify HMRC that you have resigned.
You would then report to the MLRO and not inform the client of this.
What is professional competence and due care in the ethics principle?
Members have a continuing duty to maintain professional knowledge and skills at a level required to ensure that a client/Employer receives competent professional services.
Act in accordance with applicable technical and professional standards when providing professional services based on current developments in practice, legislation and techniques.
