The UK TAX System Flashcards
(51 cards)
1
Q
What are purposes of taxation?
A
- economic
- social justice
2
Q
What is the economic purpose of taxation?
A
- the system of taxation and spending by government and its impact on the economy of a country as a whole
- taxation policies are used to influence many economic factors such as inflation, employment levels and imports/exports
- they are also used to influence the behaviour of business and individuals
- as government objectives change, taxation policies are altered
3
Q
What current UK tax system encourages?
A
- individual saving habits by offering tax incentives on savings income nil rate band
- charitable donations by offering tax relief
- entrepreneurs and investors by offering tax relief for investments in specified schemes
- carbon neutral motoring by offering tax incentives on electric cars
4
Q
What current UK tax system discourages?
A
- motoring using petrol and diesel by imposing fuel duties
- smoking and drinking alcohol by imposing significant taxes on cigarettes and alcoholic drinks
- environmental pollution by imposing a variety of taxes such as landfill tax, climate change levy and linking CO2 emissions to the taxation of company cars
5
Q
What is social justice purpose of taxation?
A
- the type of taxation structure imposed has a direct impact on the accumulation and redistribution of wealth within a country
6
Q
Main taxation principles
A
- progressive taxation
- regressive taxation
- proportional taxation
- ad valorem principle
7
Q
What is progressive taxation principle?
A
- as income rises, the proportion of tax raised also rises
- income tax is an example or progressive tax
8
Q
What is regressive taxation principle?
A
- as income rises the proportion of tax paid falls
- for example, the tax on a litre of petrol is the same regardless of the level of income of the purchaser
- this is a regressive tax as it represents a greater proportion of income for a low income earner than a high income earner
9
Q
What is proportional taxation principle?
A
- as income rises the proportion of tax remains constant
- for example, corporation tax is at 19% regardless of the company’s level of income and gains.
10
Q
What is ad valorem principle?
A
- a tax calculated as a percentage of the value of the item.
- for example, 20% VAT on most goods sold in the UK``
11
Q
Types of the taxation?
A
- income tax
- national insurance contribution (NICs)
- capital gain tax
- inheritance tax
- corporation tax
- value added tax
12
Q
What is income tax?
A
- payable by individuals on their taxable earning and investment income
13
Q
What is national insurance contribution?
A
- payable by individuals who are either employed or self-employed on their earnings
- also payable by businesses in relation to their employees
14
Q
What is capital gains tax?
A
- payable by individuals on the disposal of certain types of capital assets
- capital assets include land, buildings and shares, and can also include smaller times such as antiques
15
Q
What is inheritance tax?
A
- payable by personal representatives on the value of the estate of a deceased person
- also payable in respect of certain gifts during an individual’s lifetime
16
Q
What is corporation tax?
A
- payable by companies on their income and gains
17
Q
What is added tax?
A
- payable on the supply of goods and services by the final consumer
18
Q
What is direct taxation?
A
- the taxpayer pays direct taxes directly to HMRC
- direct revenue taxes are based on income/profits and the more that is earned/received, the more tax is paid. Examples include income tax and corporation tax
- direct capital taxes are based on the value of assets disposed of either through sale, gift or inheritance. Examples include capital gains tax and inheritance tax
19
Q
What is indirect taxation?
A
- is collected form the taxpayer via an intermediary such as a retail shop
- the intermediary then pays over the tax collected to HMRC
- an example of an indirect tax is VAT. The consumer (taxpayer) pays VAT to the supplier (intermediary), who then pays it to HMRC
20
Q
What is HMRC?
A
- is the government department that controls and administers all areas of UK tax law
21
Q
Purpose of HMRC?
A
- make sure that the money is available to fund the UK’s public services
- help families and individuals with targeted financial support
22
Q
Main duties of Commisssioners/heading up HMRC
A
- to implement statute law
- to oversee the process of UK tax administration
23
Q
Who is staff working for HMRC?
A
- Officers of Revenue and Customs
24
Q
How are the taxpayers filing the tax return?
A
- online and pay by electronic means
- companies have to file returns and pay tax electronically
- individual taxpayers can still send their returns and payments by post if they wish
- under self-assessment the responsibility for reporting the correct amount of taxable income and paying the correct amount of tax is delegated to the taxpayer to self-assess.
25
Can the Officers of Revenue and Customs request the calculation of tax payable?
Yes, on income reported for individual taxpayers (but not companies)
26
What are the sources of tax law?
- statements of practice
- extra-statutory concessions
- internal HMRC manuals
- detailed technical guidance
- HMRC website, leaflets and booklets
27
What is the statute law (tax legislation) ?
- this is law and therefore adherence is mandatory
-tax legislation is normally updated each year by one annual Finance At that follows from the proposals made by the Chancellor of the Exchequer in his annual Budget statement
- statutory instruments are issued where detailed notes are required on an area of tax legislation
28
What is case law?
- refers to the decisions made in tax cases brought before the courts
- often the case challenges current tax legislation or argues a certain interpretation of the tax law should be applied
- these rulings are binding and therefore provide guidance on the interpretation of tax legislation
29
What is HMRC guidance?
- as the tax legislation can be complex to understand and open to misinterpretation, further guidance is issued by HMRC in order to:
- explain how to implement the law
-give their interpretation of the law
30
What are main types of guidance of HMRC?
- statement of practices
- extra-statutory concessions
- internal HMRC manuals
- HMRC website, leaflets and booklets
- Detailed technical guidance
31
What is statement of practice?
- this provides HMRC's interpretation of tax law and also provides clarification or detail of how rules should be applied
32
What is extra-statutory concessions?
- allows a relaxation of the strict letter of tax law in certain circumstances
- confirms that HMRC will apply a tax law to a specific group in a more favourable way than another possible interpretation, to avoid undue hardship, unfairness, or an illogical result
- HMRC publishes current ESCs and all taxpayers in the stated situation can rely on these
- it is government policy for the content of issued ESCs to eventually be withdrawn or enacted into law
33
What is Internal HMRC manuals?
- own manuals, produce for their staff, give guidance on the interpretation of the law, available to public too
34
What is HMRC website, leaflets and booklets?
- aimed at the general public and provide explanations of various tax issues in non-technical language
35
What contains detailed technical guidance?
- HMRC issue Notices and Guidance Notes, aimed at tax agents and advisers, to explain tax issues in more technical detail than is normally required by the general public
- HMRC Briefs provide detailed technical guidance on a specific tax issue that has arisen in the year
36
What are double taxation agreements?
- known as double taxation treaties
- such treaties take precedence over domestic UK tax law and either:
. exempt certain overseas income form tax in the UK
. provide relief where tax is suffered in two countries on the same income
-where no such treaty exists, the UK system still allows for relief to be given where double tax is paid
37
What is tax evasion?
- any action taken to avoid or reduce tax by illegal means
- is an illegal activity; and carries a risk of criminal prosecution (fines and/or imprisonment)
38
What are the main forms of tax evasion?
- suppressing information
(failing to declare taxable income to HMRC)
- submitting false information
(claiming expenses that have not been incurred)
39
What is tax avoidance?
- is using the taxation regime to one's own advantage by arranging your affairs to minimise your tax liability This can also be referred toas tax planning
- it is legal and does not entail misleading HMRC
- the term is also used to describe tax schemes that utilise loopholes in the tax legislation
40
What ACCA expects from its members regarding professional and ethical guidance?
- adopt an ethical approach to work, employers and clients
-acknowledge their professional duty to society as a whole
- maintain an objective outlook
- provide professional, high standards of service, conduct and performance at all times
41
What are five fundamental principles?
- objectivity
- professional competence and due care
- professional behaviour
- integrity
- confidentiality
OPPIC
42
What means Objectivity?
- members should not allow bias, conflicts of interest or the influence or others to override objectivity
43
What is professional competence and due care?
- to maintain professional knowledge and skills to ensure that a client/employer receives competent, professional service based on current developments
- member should be diligent and act in accordance with applicable technical and professional standards when providing professional services
44
What means professional behaviour?
- members should refrain from any conduct that might bring discredit to the profession
45
What mean intergrity?
- members should act in a straightforward and honest manner in all professional and business relationships
46
What mean confidentiality?
- should not disclose any such information to third parties
47
Advising on taxation issues
- member has duties and responsibilities towards both the client and HMRC
- never be knowingly involved in tax evasion
48
What are the examples of tax irregularity?
- not declaring income that is taxable
- claiming reliefs to which they are not entitled
- not notifying HMRC where they have made a mistake giving rise to an underpayment of tax, or an increased repayment
49
Steps once error has been discovered?
1. member should explain to the client the requirement to notify HMRC as soon as possible
2. member must write and explain the potential consequences, whether they should stay working for client
3. should cease to act for the client, must write to HMRC, must consider their position under the Money Laundering Regulations
50
What is Money Laundering?
- used for offences including benefiting from or concealing the proceeds of a crime
- company needs Money Laundering Reporting Officer within the firm
-MLRO will decide whether a transaction should be reported to National Crime Agency
51
How much is the civil penalty of tax agents?
- up to £50,000
- if more than minimum £5,000 HMRC may publish details of the penalised tax agent
