Week 1 - Basics of Tax Systems Flashcards
Define tax?
A compulsory levy made by public authorities for which nothing is provided directly in return
Desirable characteristics of a tax system?
Convenient - easy to pay Certain - Can determine what is to be paid Equitable - Fair in its impacts Flexible and stable Economically efficient
What are the three main tax bases in the UK
Capital - Inheritance tax
Income - Corporation tax and Income Tax
Consumption - VAT and Excise Duty
Classifications of taxes
By unit - Levied on volume of what is being taxed
Ad Valorem - Levied on value of tax basis
Direct - Levied on person who is intended to pay tax (IT, CT, CGT & IHT)
Indirect - Bourne by person other than from whom tax is collected (VAT)
By Tax Basis - other note
Compliance cost
Cost born by individual and companies in complying with tax regulation
Factors impacting compliance costs
Economic Factors - Liquidity concerns, loss aversion and personal values
Fear of detection and punishment
Social Views and Norms
Examples of compliance costs
Cost of keeping records
Completing forms
Advice
What is the tax gap
Difference between expected and actual tax liability
UK tax system structure
HMRC Responsible for:
- NIC
- IT, CT, IHT, CGT and Stamp Duty
- VAT, Excise Duty, Customs Duty, Insurance Premium Tax, Air Passenger Duty and Landfill tax
Department of Work and Pension:
- Determines the entitlement to benefits system and pays out benefits
Name penalty regime for incorrect returns?
Careless (Max 30%)
Deliberate but not concealed (Max 70%)
Deliberate and concealed (Max 100%)
Characteristics of Careless
Failure to take reasonable care
Keeping inaccurate books and records accidentally
Failure to check the return is consistent with the underlying records
Omitting occasional items of income/gain
Characteristics of Careless
Failure to take reasonable care
Keeping inaccurate books and records accidentally
Failure to check the return is consistent with the underlying records
Omitting occasional items of income/gain
Characteristics of Deliberate but not concealed
Max 70% fine
Systematically paying wages without PAYE
Including personal expenses in business
No book keeping
Characteristics of Deliberate and Concealed
Max 100%
False invoices and backdating
Destroying books and records
Appeals Regime - What can appeals be made against?
Decision made not to suspend a penalty
The imposition of a penalty
Amount of a penalty
Conditions set by HMRC in relation to the suspension of a penalty
What is the appeals regime?
Independent tax chamber which is part of the tribunal service
What are the tiers in the tribunal service?
First tier: - Less complex cases Upper: - Appeals from the first tier - More complicated cases - If not resolved, goes to court of appeals then Supreme Court
Alternative Tax - Annual Wealth Tax
Based on an annual valuation of wealth
Benefits of Annual Wealth Tax?
Horizontal Equity - Easier to measure who is the same
Efficiency - Does not affect motivation to work as taxed on the past
Redistribution of wealth - Income tax only taxes changes in wealth, not existing wealth
Negatives of Annual Wealth Tax
What is wealth? Hard to measure
Value of certain assets, hard to measure
Alternative tax - Comprehensive Income Tax
Measure increase in the value of assets and tax it
No need
Benefits of Comprehensive Income Tax
No need to have tax on gifts and inheritance
No distinction between Capital and Income
Alternative Tax - Expenditure Tax
Direct tax to replace income tax in which individuals must register assets purchased in year
Benefits of Expenditure Tax
Tax on what you take from society
Removes disincentive to work and save
No need for a capital tax