UK Tax System - Lecture 1

Question 1

What is a tax?

Answer 1

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

Question 2

Tax system =

Answer 2

Collection of taxes in an economy

Question 3

Tax base =

Answer 3

Basis on which taxes are levied

Question 4

3 main bases in UK

Answer 4

• Income
• Consumption
• Capital (Wealth)

Question 5

Direct tax

Answer 5

Levied directly on person intended to pay tax. Collected at source or by direct assessment

Question 6

Indirect tax

Answer 6

Borne by person other than who from tax is collected

Question 7

Unit

Answer 7

Levied by volume of what is being taxed (eg tobacco - weight)

Question 8

Ad Valorem

Answer 8

Levied on value tax base (eg income tax)

Question 9

Progressive

Answer 9

Tax represents increasing portion as value of tax basis rises

Question 10

Proportional

Answer 10

Tax represents constant portion of value of tax base

Question 11

Regressive

Answer 11

Tax represents declining portion as value of tax basis rises

Question 12

Marginal rate tax > average rate of tax

Answer 12

Progressive

Question 13

Marginal rate tax = average rate of tax

Answer 13

Proportional

Question 14

Marginal rate tax < average rate of tax

Answer 14

Regressive

Question 15

Income tax

Answer 15

Paid by individuals on taxable income for the tax year

Question 16

Corporation tax

Answer 16

Paid by UK resident companies on taxable total profit for company’s chargeable accounting period

Question 17

National insurance - individuals

Answer 17

Paid by individuals on earned income from employment/ self employment for tax year

Question 18

National insurance - employers

Answer 18

Paid by UK businesses in form of NIC for employees on income from employment of employees for tax year

Question 19

Capital Gains Tax

Answer 19

Paid by individuals on profits made on sale of certain assets (for investment purposes/ outside normal business) for tax year

Question 20

Inheritance tax

Answer 20

Arises where chargeable person makes transfer of value. Can be during person’s lifetime or on estate when die

Question 21

Value Added tax

Answer 21

Paid by individuals and companies on goods and services purchased in VAT accounting period (depends when become VAT registered)

Question 22

HMRC

Answer 22

Administration function for the collection of taxes

Question 23

Tax year runs

Answer 23

6th April - 5th April

Question 24

Financial year

Answer 24

1st April - 31st March

Question 25

Self assessment deadline

Answer 25

Return (within 12 months end CAP) and payment must be sent by 31/01/2019

Question 26

HMRC to calculate deadline

Answer 26

Submit return by later of:

• 31/10/2018 or
• 3 months after receipt notification from HMRC

Question 27

Compliance costs

Answer 27

Costs imposed on tax payer when they attempt to comply with taxes

Question 28

Careless mistake

Answer 28

Fail to take reasonable care (max 30% penalty)

Question 29

Deliberate mistake not concealed

Answer 29

But not concealed (max 70% penalty)

Question 30

Deliberate mistake concealed

Answer 30

Max 100% penalty

Question 31

Tax gap

Answer 31

Difference between tax actually collected and theoretical liability

Question 32

Tax burden

Answer 32

Degree to which tax affects the tax payer

Question 33

Incidence of tax

Answer 33

Who has to pay the tax and when it has to be paid

Question 34

Economically efficient

Answer 34

Doesn’t distort the economic and commercial decisions made by individuals