What are the two main purposes of taxation in a modern economy?
- Economic purpose - to provide government revenue, to stabilise the economy, and influence behaviour
- Social purpose - to promote fairness through the distribution of wealth and funding public welfare
What is direct taxation?
Direct taxes are paid straight to the government by the person/organisation responsible. E.g. Revenue is taxed (income tax and corporation tax), and capital assets are taxed (capital gains tax and inheritance tax) - PROGRESSIVE TAXATION
What is indirect taxation?
Indirect taxes are collected by an intermediary, such as a business, and passed to the government (e.g. VAT). The cost is usually passed to consumers - REGRESSIVE TAXATION.
What is Progressive Taxation?
Higher earners pay a larger percentage of their income tax compared to lower earners, e.g. income tax
What is Regressive Taxation?
The burden of tax falls more heavily on those who earn less, e.g. VAT
What is Proportional Taxation?
The same percentage of tax is applied to everyone regardless of income or wealth
What is the Ad Valorem principle?
Tax is calculated as a percentage of the value of the item rather than a fixed amount e.g. VAT
Identify the types of Capital Tax
Charged on wealth, assets, or gains (e.g. Capital Gains Tax, inheritance Tax, Stamp Duty Land Tax)
Identify the different types of revenue tax
Charged on income, profits, or spending (e.g. Income Tax, National Insurance, Corporation Tax, VAT)
Describe the structure of the UK Tax System
A: The UK tax system is administered by HMRC under a self-assessment framework. Taxpayers report and pay their own taxes, mostly online, while HMRC oversees compliance, enforces tax law, and provides support and guidance.
What are the 2 main sources of revenue law
- Statute law – Adherence is mandatory (e.g. Income Tax Act 2007).
- Case law – court rulings interpreting legislation.
Describe the organisation HMRC and its terms of reference.
HMRC is the government department responsible for collecting taxes, enforcing tax law, and providing financial support.
Its terms of reference are to ensure enough revenue is raised to fund public services and to support families and individuals fairly.
What is Tax Avoidance?
Legally reducing tax through using loopholes in the system. No misleading information is given
What is Tax Evasion?
Illegally not paying tax e.g. giving false information
What does GAAR stand for and what is its purpose?
GAAR = General Anti-Abuse Rule
Purpose: It aims to prevent taxpayers from using artificial or abusive schemes to avoid tax
Why are double taxation agreements needed?
They prevent the same income being taxed twice in two countries. They allocate taxing rights between nations ad provide reliefs
Why is an ethical and professional approach important in taxation?
It maintains public trust and integrity in the tax system. Professionals must act with OPPIC. Ethical behaviour promotes transparency, compliance, and confidence in tax administration.
Explain the features of the self-assessment system as it applies to individuals.
Under self-assessment, individual taxpayers are responsible for calculating, reporting, and paying their own tax. Returns are normally due by 31 October (paper) or 31 January (online) after the tax year.
Most payments are made via Payments on Account (if less than 80% of tax is deducted at source), and a balancing payment by 31 January following tax year.
Explain the features of the self-assessment system as it applies to companies, including the use of iXBRL.
Companies must calculate their own Corporation Tax liability and submit a Company Tax Return electronically to HMRC, normally within 12 months of the accounting period end.
Computations must be submitted in iXBRL format, allowing HMRC’s systems to read and analyse financial data automatically.
Tax must be paid 9 months and 1 day after the end of the accounting period (or quarterly for large companies).
What are the time limits for filing returns and making claims?
Individuals:
- Paper tax return – due by 31 October after the tax year.
- Online tax return – due by 31 January after the tax year.
Companies:
- Corporation Tax Return (CT600) – due within 12 months of the end of the accounting period.
Claims for reliefs:
- Usually must be made within four years from the end of the tax year
What are the due dates for paying tax under self-assessment, and how are Payments on Account made?
Balancing payment: Due by 31 January following the end of the tax year.
Payments on Account (POAs) instalment dates:
- 31 January in the tax year
- 31 July after the tax year.
Each POA = 50% of the previous year’s Income Tax liability (excluding CGT).
How do large companies account for Corporation Tax quarterly?
Large companies (profits > £1.5 million, divided by number of associated companies) must pay Corporation Tax in 4 equal instalments.
- 6 months + 13 days after start of period.
- 3 months later.
- 3 months later.
- 3 months later.
What information and records must taxpayers retain for tax purposes?
Individuals: Keep records for at least 22 months after the end of the tax year (longer if self-employed — 5 years after 31 January filing deadline).
Companies: Keep accounting records for 6 years from the end of the accounting period.
In what circumstances can HMRC make a compliance check into a self-assessment tax return?
HMRC can carry out a compliance check (or enquiry) to ensure a tax return is accurate and complete.
Checks may be:
- Risk-based: if information appears incorrect, inconsistent, or unusual.
- Random: part of routine monitoring to encourage compliance.
HMRC must open an enquiry within 12 months of the filing date. If errors are found, they can amend the return, charge penalties, and collect additional tax.
