Tax Compliance Flashcards
(37 cards)
What’s the difference between tax policy, tax practice and tax administration
Tax policy is the government creating tax legislation which is to be followed.
Tax practice is the method or activity used to comply with tax policy.
Tax administration is HRMC collecting taxes.
Definition of tax compliance
Degree to which taxpayers comply with tax law.
What is James and Alley’s (2002) definition of tax compliance
Willingness of individual and other taxable entities to comply to act in accordance with the spirit of the law, as well as the letter of the law and administration without the application of enforcement activity
What would tax lawyers state about tax compliance
The spirit of the law is irrelevant. The law is the law. Non compliance would not be complying with what is in black and white.
What would social sciences say about tax compliance
Look at spirit of the law, which is what the laws intentions were.
Do people have different perspectives on tax legislation
Yes. People think of different spirits of the law, which can lead to issues of tax avoidance. Tax is easier to understand now than it was 30 years ago.
Who has final say on tax disputes
The courts
What is tax evasion
Illegal means to obtain a tax advantage
What is tax avoidance
Legal means to get a tax advantage
What is the reference for a critical perspective on tax planning, tax avoidance and tax evasion
Hanlon, Michelle and Heitzman 2010.
What did Hanlon, Michelle and Heitzman 2010 say
They stated that the relationship between tax avoidance, tax evasion and tax planning is a continuum.
Tax planning is legal. Tax avoidance is legal but not emphasised. Tax evasion is illegal. It operates as a continuum and each person is somewhere on the continuum.
What is Tax Morale?
Intrinsic motivation to comply with tax law and pay your taxes.
Why is tax morale important?
Each country relies on some tax morale in terms of a country paying tax. Not every person could be interrogated if they did not pay their taxes. Governments rely on some motivation of people to want to pay their taxes.
Tax Morale - OECD 2024
Tax morale is higher in countries where there is more tax.
Age, education, gender and religion all make a difference to tax morale.
HMRC’s definition of tax avoidance
Bending the rules of the tax system to gain an advantage that parliament never intended.
It often involves operating within the letter of the law, but not the spirit of the law.
What is tax planning
Tax planning is using tax reliefs for the purpose that they were designed for. E.g., claim non dom status.
What was largest reason for tax gap in 2021-22
30% of tax gap due to people not taking reasonable care of the accounts.
Government June 2023 tax gap summary
Tax gap estimated to be 4.8%, meaning HMRC collected 95.2% of taxes they expected to collect. In nominal terms, this is £35.8bil.
Tax gap reduced from 7.5% in 2005-6 to 4.8% in 2021 2022.
Tax gap now higher in terms of corporation tax and exercise duty than 2006, whereas income tax, NIC and CGT, and VAT tax gaps have reduced.
Tax gap now vs 2006
Tax gap now is higher in terms of nominal amount but less in terms of proportion of taxes collected. This is due to inflation.
Corporation tax in tax gap
Second largest contributor at 30%. Increasing year on year.
IT, CGT and VAT in tax gap
35% of tax gap
Which group represent largest proportion of tax gap
Small businesses at 56%. This is followed by criminals, medium sized businesses and large businesses at 11% each. Wealthy people account for 5%.
Behaviour type for tax gap
Careless errors at 30%, higher now than in 19/20 (24%). Purposeful error second (15% overall) with evasion accounts are third (13%). Tax interpretation at 12% and non payment at 9% (debt repayment to hmrc)
What are the types of compliance
Economic models of compliance
Interdisciplinary approaches
Behavioural models of compliance (psychological and social)
