Flashcards in Chapter 1 - Intro to UK tax system Deck (19):
What is the economic purpose of tax?
Taxation is a withdrawl from UK economy. Government spending is an injection into it. Government uses tax policy to encourage and discourage certain activity.
What are examples of thing government tries to encourage or discourage with taxation?
Encourage: Savings; Marriage; Charitable giving; Investment in plant and machinery and entrepreneurship.
Discourage: Smoking; Drinking alcohol; Motoring
What is the social purpose of tax?
Social justice. Seeks to redistribute wealth and income from rich to poor.
What is an efficient tax?
One where the cost of collection is below tax received by government.
What are social effects of taxes?
Different taxes have different effects. Direct taxes tax those who have resources. Indirect taxes discourage spending and encourage saving. Progressive tax targets who can afford to pay.
What are environmental tax examples?
Climate change levy, Landfill tax, Tax rules around motoring
What is direct tax and indirect tax?
Direct tax are charged on income, gains and wealth. Collected directly from taxpayer e.g. inheritance tax, income tax, national insurance.
Indirect tax are those paid by consumer to supplier and passed on to government, e.g. VAT.
What are types of revenue and capital tax?
Revenue: Income tax, Corporation tax (on income profit), National Insurance
Capital: Capital gains, Inheritance tax, Corporation tax (on capital gains)
What is the overall structure of the UK tax system?
HM Treasury imposes and collects tax. Management of Treasury is responsibility of Chancellor of Exchequer
HMRC is admin function for collection of tax.
CPS provides legal advice and conducts criminal prosecution in England and Wales where has been a HMRC investigation.
Where are tax appeals heard?
Tax tribunals. There are two tiers: First Tier deals with most cases unless complex. Upper Tier deals with complex cases, hear cases involving large sums or issues of tax laws and also appeals from First Tier.
What are different sources of revenue law?
Acts of Parliament, Statutory Instruments and case law.
What other items does HMRC issue?
Statements of practice
Extra statutory concessions
Revenue and Customs Brief
Interactions of UK tax system with other jurisdictions
Most relevant is EU where there are Directives that provide a common taxation code in certain areas. VAT is an example. Provisions also with regard to sharing of information. Double tax agreements are another area of interaction.
What is a double taxation agreement?
An agreement between two countries designed to protect against risk of the same income or gains being taxed twice in two countries. Item should only be taxed in one country or credit given in one country against tax charge in another. Usually include rules on exchange of information and non discrimination provisions.
What is tax evasion?
Seeking to pay too little tax by deliberately misleading HMRC. This is illegal. Could provide misleading or deliberately false information. Serious cases can lead to fines and/or prison sentence.
What is tax avoidance?
Any legal method of reducing your tax burden. There are disclosure requirements on promoters of certain tax advantage schemes to provide details to HMRC. This allows HMRC to close loopholes and make anti avoidance measures.
What is the General Anti Abuse Rule (GAAR)?
This enables HMRC to counteract tax advantages arising from abusive tax arrangements. They are regarded as abusive if they cannot be regarded as a reasonable course of action. E.g. significantly less income, profit or gain; significantly greater deduction or losses
What are examples of tax advantages?
Relief or increased relief from tax
Repayment or increased repayment of tax
Avoidance or reduction of a charge to tax
Avoidance of a possible assessment of tax
Deferral of a payment of tax or advancement of repayment of tax
Avoidance of obligation to pay tax