UK Tax System - Lecture 1 Flashcards
What is a tax?
Compulsory levy imposed by government (or other tax raising body) on income, expenditure or capital assets from which the taxpayer receives nothing directly in return
Tax system =
Collection of taxes in an economy
Tax base =
Basis on which taxes are levied
3 main bases in UK
- Income
- Consumption
- Capital (Wealth)
Direct tax
Levied directly on person intended to pay tax. Collected at source or by direct assessment
Indirect tax
Borne by person other than who from tax is collected
Unit
Levied by volume of what is being taxed (eg tobacco - weight)
Ad Valorem
Levied on value tax base (eg income tax)
Progressive
Tax represents increasing portion as value of tax basis rises
Proportional
Tax represents constant portion of value of tax base
Regressive
Tax represents declining portion as value of tax basis rises
Marginal rate tax > average rate of tax
Progressive
Marginal rate tax = average rate of tax
Proportional
Marginal rate tax < average rate of tax
Regressive
Income tax
Paid by individuals on taxable income for the tax year
Corporation tax
Paid by UK resident companies on taxable total profit for company’s chargeable accounting period
National insurance - individuals
Paid by individuals on earned income from employment/ self employment for tax year
National insurance - employers
Paid by UK businesses in form of NIC for employees on income from employment of employees for tax year
Capital Gains Tax
Paid by individuals on profits made on sale of certain assets (for investment purposes/ outside normal business) for tax year
Inheritance tax
Arises where chargeable person makes transfer of value. Can be during person’s lifetime or on estate when die
Value Added tax
Paid by individuals and companies on goods and services purchased in VAT accounting period (depends when become VAT registered)
HMRC
Administration function for the collection of taxes
Tax year runs
6th April - 5th April
Financial year
1st April - 31st March
Self assessment deadline
Return (within 12 months end CAP) and payment must be sent by 31/01/2019
HMRC to calculate deadline
Submit return by later of:
- 31/10/2018 or
- 3 months after receipt notification from HMRC
Compliance costs
Costs imposed on tax payer when they attempt to comply with taxes
Careless mistake
Fail to take reasonable care (max 30% penalty)
Deliberate mistake not concealed
But not concealed (max 70% penalty)
Deliberate mistake concealed
Max 100% penalty
Tax gap
Difference between tax actually collected and theoretical liability
Tax burden
Degree to which tax affects the tax payer
Incidence of tax
Who has to pay the tax and when it has to be paid
Economically efficient
Doesn’t distort the economic and commercial decisions made by individuals
