01 - Introduction Flashcards
What are the six principles of taxation?
Neutrality, efficiency, certainty of simplicity, effectiveness, fairness, flexibility
Describe the tax principle of neutrality
The minimisation of discrimination in favour of or against particular economic choices
Describe the tax principle of efficiency
Compliance and administration costs should be minimised as far as possible, these should be low in relation to the tax raised
Describe the tax principle of certainty of simplicity
The system should be easy to understand, rules should be clear and liability easy to calculate
Describe the tax principle of effectiveness
Should produce the right amount of tax at times it is needed whilst avoiding double taxation and minimising tax evasion and avoidance
Describe the tax principle of fairness
The system should be determined by a persons ability to pay , with wealthier individuals or firms paying more taxes and those with lower incomes paying comparatively less
Describe the tax principle of flexibility
Dynamic and adaptable enough to meet the revenue needs of the government whilst adapting to changing needs
What is a tax base?
The value of income or assets on which tax can be imposed
What is a progressive tax system?
When a tax rate increases as the tax base increases
What is a regressive tax system?
The lower the income the higher the tax rate in relation to that income or the opposite of the UK system ie. allowance taxed @ 40%, basic @ 20% and anything above @ 0%
What is a proportional tax system?
When a tax rate is unrelated to income earned ie. all income is taxed @ 20%
What are the five standards for tax planning?
Client specific, lawful, disclosure and transparency, tax planning and arrangements, professional judgement and appropriate documentation
Define the standard of tax planning - client specific
Planning must be specific to each clients particular circumstances and not generic
Define the standard of tax planning - lawful
The accountant has a duty to act lawfully and with integrity and should expect the same from their clients
Define the standard of tax planning - disclosure and transparency
The advice must present HMRC with all of the relevant facts to make an assessment, withholding facts us unethical and sometimes illegal
Define the standard of tax planning - tax planning and arrangements
The accountant must not promote tax planning that sets out to achieve results that are not intended by the government or take advantage of loopholes within legislation
Define the standard of tax planning - professional judgement and appropriate documentation
The accountant should keep relevant documents that explain the reasoning behind and judgements made
What is a residence?
A test designed to see where that tax payer is living in the tax year
What is domicile?
A more permanent test, considering the tax payers permanent home. Often looking at where they will return to be buried
