Chapter 2: Basic Income Tax Computation

Question 1

Which taxation principle is listed below?

As income rises, the proportion of tax raised also rises. For example: 20% up to £37,500 of taxable income and 40% up to £150,000 of taxable income.

Answer 1

Progressive taxation

Question 2

Which taxation principle is listed below?

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.

It represents a greater proportion of income for a low income earner than a high income earner.

Answer 2

Regressive taxation

Question 3

Which taxation principle is listed below?

As income rises the proportion of tax remains constant. For example, 10% of all earnings regardless of the level.

Answer 3

Proportional taxation

Question 4

Which taxation principle is listed below?

A tax calculated as a percentage of the value of the item. For example, 20% VAT on most goods sold in the UK.

Answer 4

Ad valorem principle

Question 5

What is the main difference between tax evasion and tax avoidance?

Answer 5

Tax evasion is illegal.

Tax avoidance is legal.

Question 6

What is test one of the UK residency test?

Answer 6

During the tax year…

• Have they been in UK for less than 16 days?
• A person who is in UK less than 46 days and Non UK resident during three previous tax years.
• Works full time overseas subject to not being in UK for more than 90 days

If yes - Non UK resident
If no- Test 2

Question 7

What is test two of the UK residency test?

Answer 7

• A person in uk for 183 or more days in tax year
• 30 days in tax year and only home in UK
• Full time work in UK?

If yes - UK resident
If no- Test 3