lesson 1

Question 1

What are the main types of taxes in the UK?

Answer 1

Income Tax, National Insurance, VAT, Capital Gains Tax, Inheritance Tax, Corporation Tax.

Question 2

Q: What are two main reasons we need taxation?

Answer 2

A: Economic reasons (influencing inflation, employment, behaviour) and social justice (redistribution of wealth).

Question 3

Q: What is the difference between direct and indirect taxes?

Answer 3

A: Direct taxes are paid by the person earning the income (e.g., Income Tax), while indirect taxes are collected by an intermediary (e.g., VAT).

Question 4

Q: Define progressive and regressive taxes with examples.

Answer 4

A: Progressive taxes increase with income (e.g., Income Tax); regressive taxes decrease with income (e.g., National Insurance).

Question 5

Q: Who governs the UK tax system?

Answer 5

A: HMRC (His Majesty’s Revenue and Customs).

Question 6

Q: What are the two sources of tax law in the UK?

Answer 6

A: Tax legislation (e.g., Finance Act) and case law (court judgments).

Question 7

Q: What is the legal difference between tax avoidance and tax evasion?

Answer 7

A: Tax avoidance is legal use of loopholes; tax evasion is illegal and involves deliberately misleading HMRC.

Question 8

Q: What should a tax advisor do if a client refuses to report an error to HMRC?

Answer 8

A: Advise the client in writing, cease to act, notify HMRC of withdrawal, and consider money laundering responsibilities.

Question 9

Q: What is the personal allowance (PA) for 2024–25, and how is it reduced?

Answer 9

A: £12,570. It’s reduced £1 for every £2 above £100,000 of adjusted net income.

Question 10

Q: When do tax years run for individuals and companies?

Answer 10

A: Individuals: 6 April to 5 April. Companies: 1 April to 31 March.

Question 11

Q: What are the Self Assessment filing deadlines?

Answer 11

A: Paper: 31 October following the tax year. Online: 31 January following the tax year.

Question 12

Q: What are the payment dates for income tax (2024–25)?

Answer 12

A: First POA: 31 Jan 2025, Second POA: 31 July 2025, Balance: 31 Jan 2026.

Question 13

Q: Name three types of exempt income.

Answer 13

A: ISA income, National Savings Certificates, Premium Bond winnings.

Question 14

Q: What are the income tax rates for 2024–25 on non-savings income?

Answer 14

A: Basic rate: 20% on first £37,700; Higher rate: 40% on next £87,440; Additional rate: 45% above £125,140.

Question 15

Q: What is the Personal Savings Allowance for 2024–25?

Answer 15

A: £1,000 for basic rate, £500 for higher rate, £0 for additional rate taxpayers.

Question 16

Q: What are the dividend tax rates for 2024–25?

Answer 16

A: Ordinary rate: 8.75%, Upper rate: 33.75%, Additional rate: 39.35%.

Question 17

Q: What is the dividend allowance in 2024–25?

Answer 17

A: £500 for all taxpayers, taxed at 0%.

Question 18

Q: How does Gift Aid affect tax limits and allowances?

Answer 18

A: Increases basic and higher rate limits; donors must have paid enough tax to cover the relief.

Question 19

Q: When will Making Tax Digital for Income Tax be introduced?

Answer 19

A: April 2026 for income above £50,000; April 2027 for income above £30,000.

Question 20

Q: What types of income are classified in income tax computations?

Answer 20

A: Employment income, property income, trading income, interest, and dividends.

Question 21

Q: What is tax avoidance?

Answer 21

A: A legal method by which taxpayers organise their affairs to minimise their tax liability, e.g., using tax-efficient investments.

Question 22

Q: How does tax avoidance differ from tax evasion?

Answer 22

Tax avoidance is legal but may be seen as unethical; tax evasion is illegal and involves deliberate misrepresentation to HMRC.

Question 23

Q: Why has tax avoidance become a concern for HMRC?

Answer 23

Q: Why has tax avoidance become a concern for HMRC?

Question 24

Q: What is the purpose of DOTAS (Disclosure of Tax Avoidance Schemes)?

Answer 24

A: To provide HMRC with advance warning of avoidance schemes so they can investigate and counteract them promptly.

Question 25

Q: Who must disclose schemes under DOTAS?

Answer 25

A: Scheme promoters and developers who market or use schemes with certain “hallmarks” of tax avoidance.

Question 26

Q: What must taxpayers do when using a registered tax avoidance scheme under DOTAS?

Answer 26

A: Include the scheme’s reference number in their tax return.

Question 27

Q: What is the GAAR and when was it introduced?

Answer 27

A: The General Anti-Abuse Rule, introduced in Finance Act 2013, counters tax advantages from “abusive” arrangements across several taxes.

Question 28

Q: What constitutes an “abusive” tax arrangement under GAAR?

Answer 28

A: Arrangements that are inconsistent with the principles of tax law, involve contrived/abnormal steps, or exploit legal shortcomings.

Question 29

Q: What can HMRC do under GAAR to counteract abuse?

Answer 29

A: Make “just and reasonable” adjustments to remove tax advantages or impose tax liabilities.

Question 30

Q: What steps must HMRC follow before applying GAAR?

Answer 30

A: Notify the taxpayer, allow 45 days for representation, refer to the GAAR Advisory Panel, then decide based on the panel’s opinion.

Question 31

Q: What is the role of the GAAR Advisory Panel?

Answer 31

A: To review the tax arrangement and give an independent opinion on whether it is abusive.

Question 32

Q: What penalty applies when GAAR successfully counteracts an abusive scheme?

Answer 32

A: A penalty of 60% of the additional tax due.

Question 33

Q: Can taxpayers appeal a GAAR decision?

Answer 33

A: Yes, but the court/tribunal must consider the GAAR Advisory Panel’s opinion when hearing the appeal.

Question 34

Q: How does the UK government fight tax avoidance? (Exam-style theory flashcard)

Answer 34

A: Through legal frameworks like DOTAS (mandatory scheme disclosure), GAAR (empowers HMRC to counteract abusive arrangements), penalties (60%), and targeted anti-avoidance legislation.

Question 35

Q: What are Payments on Account (POA) in UK taxation?

Answer 35

A: First instalment: 31 January in the tax year. Second instalment: 31 July after the tax year.

Question 36

Q: What happens if the actual tax liability is higher than the POAs paid?

Answer 36

A: A balancing payment is due by 31 January following the end of the tax year.

Question 37

Q: What are Payments on Account (POA) in UK taxation?

Answer 37

A: Advance payments made towards an individual's income tax bill for the current year, based on the previous year's liability.

Question 38

Q: Which components of the tax liability are excluded when calculating POA?

Answer 38

A: Capital Gains Tax and Student Loan repayments.

Question 39

Q: Can Payments on Account be reduced?

Answer 39

A: Yes, if you expect your current year's tax liability to be lower, you can apply to HMRC to reduce POAs.

Question 40

Q: Test yourself: Your 2023–24 income tax bill was £3,000. Assuming POA applies, how much do you pay and when? What happens if your 2024–25 bill ends up being £3,600?

Answer 40

A: £1,500 paid on 31 Jan 2024 (1st POA) £1,500 paid on 31 July 2024 (2nd POA) £600 balancing payment due 31 Jan 2026 (because actual 2024–25 liability was £3,600)

Question 41

income classification

Answer 41

employment income property income trading income interest dividends