Tax System and Administration in the UK

Introduction

• Explore tax systems in the UK
• Types of tax and associated laws
• History of taxation and its evolution
• Impact of tax on the economy
• Seriousness of tax evasion and avoidance
• Insight into HMRC and its responsibilities

Topics Covered

1. What is tax?
2. Origin and history of taxation
3. Economic function of taxation
4. Social justice purpose of taxation
5. Different types of taxes
6. Principal sources of revenue law and practice
7. HMRC and its function
8. Tax avoidance and tax evasion

What is Tax?

• Money deducted by the government
• Mandatory contribution with no direct return
• Governed by legislation ensuring liability is clear

Origin and History of Taxation

• Earliest record: 3300 BCE, Samaria (modern Iraq)
• Ancient forms included crops, labor, and military service
• Growth in taxation during 19th and 20th centuries in industrial nations

Economic Function of Taxation

• Tax influences behavior of individuals, businesses, and the economy
• Examples:
  • Interest rates and spending/saving
  • Tax relief on charitable donations
  • Incentives for low carbon emissions
  • Excise duties on alcohol and tobacco

Social Justice Purpose of Taxation

• Structuring the tax system:
  1. Proportional Taxation: Flat rate (e.g., income tax)
  2. Regressive Taxation: Higher income, lower tax rate (e.g., fuel)
  3. Progressive Taxation: Higher income, higher tax rate
  4. Ad valorem principle: Tax based on value (e.g., VAT)

Different Types of Taxes

• Income Tax: Based on income
• National Insurance Contributions: Paid by businesses
• Corporation Tax: Payable by companies
• Capital Gains Tax: On chargeable assets
• Inheritance Tax: Charged on wealth transfer
• Value-Added Tax (VAT): On goods/services
• Stamp Duty: On shares, land, or property
• Direct and Indirect Taxation

Principal Sources of Revenue Law and Practice

• Structure of the UK tax system:
  1. Chancellor of the Exchequer
  2. The Treasury
  3. HMRC
• Revenue laws include Finance Act updates, statutory instruments, and case law

HMRC and Its Function

• Her Majesty's Revenue and Customs, responsible for tax collection
• Formed by merging Customs and Excise with Inland Revenue in 2005
• Roles include collecting taxes and administering child benefits and national insurance

Tax Avoidance and Tax Evasion

• Tax Avoidance: Legal means to minimize tax; illegal if abusive
• Tax Evasion: Illegal; leads to prosecution and penalties
• General Anti-Abuse Rule (GAAR): Counteracts abusive tax avoidance

Ethical and Professional Approach

• Need for ethical conduct in taxation
• ACCA's Five Principles of Ethics:
  1. Integrity
  2. Objectivity
  3. Professional competence and due care
  4. Professional Behavior
  5. Confidentiality

Summary

• History and impact of taxation
• Tax system structures and types
• HMRC's history and responsibilities
• Tax evasion vs. avoidance
• GAAR and aggressive tax avoidance

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• End of module discussion. Next module pending.