Ch 2 - Introduction to taxation Flashcards
What are the objectives of tax?
- Management of the economy
- Social justice
- Environmental concerns
- Devolved taxes
- External influences
What does the system of taxation and spending by a gvmt impact?
The economy as a whole
What are taxation policies used for?
Influence many economic factors such as
- inflation
- employment levels
- imports
- exports
Directs the economic behaviour of businesses and individuals
What does the current tax system encourage?
- Individual saving habits by offering tax incentives on savings accounts such as ISAs
- Charitable donations by offering tax relief through Gift Aid scheme
Entrepreneurs and investors by offering tax relief/schemes such as Enterprise Investment Scheme
What does the UK gvmt discourage?
- Motoring by imposing additional fuel duties
- Smoking a drinking alcohol by imposing signif taxes on these items
What happens to tax as gvmt’s objectives change?
Taxation policies are altered in accordance
What are the main taxation principles?
- Direct v indirect principles
- Progressive v regressive principle
- Unit/value principle
- Income/capital/expenditure principle
- Ability to pay/benefit principle
- Other principles
- Neturality principle
- Equity principle
- Efficiency principle
What is the direct v indirect principle?
Direct taxes - these are paid by those who generate the funds e.g. income tax, capital gains tax, corporation tax
Indirect taxes - these relate to consumption e.g. VAT
What is progressive vs regressive principle?
Progressive taxes - these increase with income e.g. income tax rates rise as income rises
Regressive taxes - these decrease with income e.g. national insurance rates fall as income rises
What is the unit/value principle?
Unit taxes - these are calculated as a flat rate per item, regardless of value
Value taxes - these are added to the percentage value of goods or services e.g. 20% VAT on most goods sold in the UK
What is the income/capital/expenditure principle
Income taxes - these are paid by those who generate income
E.g. corporate tax is paid by companies on their profits
Capital taxes - these are paid on the disposal of capital assets e.g. capital gains tax
Expenditure taxes - these are paid to those who incur expenditure e.g. VAT
What is the ability to pay/benefit principle?
These are 2 opposing arguments
* Ability to pay principle - tax should be based on ability to pay e.g. income tax
- Benefit principle - tax should be based on the benefit that taxpayer receives e.g. people should have the option to pay towards NHS or take private health care
What is the neutrality principle?
tax shouldn’t distort choice, although section1 suggests that this isn’t always applied by UK gvmt
What is the equity principle?
Tax should be fair and just
What is the efficiency principle?
Cost of collection of tax should be less than the tax raised
How can taxes affect direct behaviour re env concerns?
Landfill tax
Climate change levy in relation to energy consumption
Linking CO2 emissions to the taxation of company cars
What are devolved taxes?
Devolution has resulted in Scotland and Wales operating different tax systems from there set of the UK
These are administered by Revenue Scotland and the Welsh Revenue Authority respectively
What are the external influences with UK taxation
Currently the main threat is the EU, but this will change once UK leaves the EU
many UK’s international tax treaties
Impact of the banking crisis, resulted in a bank levy being introduced in Jan 2011
How did the banking crisis have an influence on UK tax?
It resulted in a bank levy being introduced in Jan 2011
What are the various types of income is taxed?
Income tax and national insurance contributions on earnings VAT on goods bought Stamp duty land tax when buying a house Corporation tax Inherentence tax Capital gains tax
How is income tax collected?
Payable on individuals on their earnings, from both employment and self-employment
How is income tax collected?
PAYE is the system under which income tax is collected from employed workers
Who has to pay National Insurance Contributions? (NICs)
Payable by all individuals who are either employed or self-employed
Payable by businesses (sole traders or companies) in relation to their employees
How do businesses pay NICs?
In relation to their employees, whether they are sole trader or companies
