Describe The Uk Tax Environment Economics Essay

A tax is a compulsory contribution, imposed by government even though taxpayers may get nothing identifiable in return for their contribution, they nevertheless possess the benefit of currently in a relatively educated and safe society". (IISTE, 2012)

Taxes imposed in the UK my classified in a variety of ways. Three different may be take on into taxes on income, on capital and on costs. Alternatively, and arguable more satisfactorily, the categorisation may be into direct and indirect taxes, tax bottom and equitable

Tax platform - taxes have to be levied on some basis or other, and a convenient way of classifying a taxes is to take action according to what is being taxed. Three main duty bases are being used in the present UK tax system. See (Appendix1)

Direct/ indirect - a primary duty is one levied on the individual who is intended to pay the taxes where an indirect tax is borne by the person other than the one from whom the duty is gathered.

Equitable - fees should never only be reasonable they must also be observed to be good if the taxpaying open public is to find the acceptable. A couple of two types of equitable to be consider - horizontal and vertical equity.

Income tax

Income duty is a relatively modern tax in comparison to other kinds of taxation used in the UK. Tax was first introduced in the UK by William Pitt in 1799, as a momentary solution to help found the battle with France. Pitt's income tax of 1799 was as unpopular duty and when Addington, Pitt's successor, re-enacted tax in 103 it embodied two guidelines that still exist in today's income tax, namely the schedules of income tax and the deduction if duty at source.

Income tax was last launched by Robert Peel off in 1842, again as a non permanent tax and remains as a result today, and because of this it must be re-imposed every year by Parliament via the Fund Act. The primary statutory charge provisions for income tax are contained in the Income and Corporation Taxes Take action 1988. Because tax remains a short-term tax, it must be reintroduced every year via the Funding Act. That is generally achieved in three stages

Budget conversation: each year the Chancellor will lay out the new duty proposals in his or her budget speech.

Finance bill: the financing bill pieces out the new tax proposals at length, that happen to be then debated and may amended before handed by Parliament.

Finance Work: when the Money Bill obtains Royal Assent, it then becomes regulation, i. e. the Financing Act. Individual, partnerships and trusts that are resident in the UK throughout a fiscal 12 months are liable to UK tax on their worldwide income; non resident are only liable to UK tax on their UK income, typical dwelling and domicile can also have an impact on the tax responsibility. Certain people however are specifically exempt from tax namely: reps of abroad countries and their staff (ambassadors); UK recorded charities; trade unions; friendly societies; and approved pension money. Beside certain persons being exempt from tax, certain types of tax also exempt from the taxes the following, see (Appendix 3)

There are no meaning of income in the duty legislation, instead sources if income are recognized and if an individual has income from anybody of those resources then it is taxed based on the rules of this income source. These sources of income are known as the schedules of income tax. The legislation lays down the guidelines from calculating the tax responsibility for each and every of the schedules with regard to: the basis of assessment; expenses available; and loss relief available. See the schedules of income tax in (Appendix 2)

Income tax accumulated by either: deduction at source; or by direct examination. Deduction of income tax at source - certain types of income have duty deduction at source, i. e. the tax is accumulated from the person paying the source of income rather than from the person acquiring the income. This feature was first introduced in the united kingdom in Addington's tax of 1803 and has two main advantages: it is administratively productive and it reduces the risk of tax income being lost through debt. Income received online of basis rate income tax - income received under a deed of covenant; patent royalties and income portion of a purchase life annuity.

Income Tax is a tax on income. Income tax has the key income for the united kingdom government and each type of income tax has its own rules and policies to choose how much income should be evaluated. Approximately 29. 5 million individuals pay income tax in the UK. However not absolutely all income is taxable and individuals only taxed on 'taxable income' greater than a driven level. Also there are other allowances that can lessen income tax expenses and in some instances individual aren't pay taxes.

"The Tax is charges on earnings from work, on rentals income from properties, on interest from the banking institutions and building societies, on dividends from companies and on the gains of the one-man shop". (UK Essays, 2013)

National insurance contributions

The social security system can be divided into two specific parts: First, is non contribution system - entitlement to get express benefits is not associated with national insurance efforts but predicated on some other strategy, e. g. means tested benefits such as income support.

Second is contributory scheme - entitlement to get sate benefits is dependent on the average person having paid the relevant national insurance contribution, e. g. status retirement living pension. NICs are payable with an getting related basis and paid in to the national insurance fund to help meet up with the costs of contributory benefits and make a small contribution (approximately 12% of the finance) to the Country wide Health Service, even though national healthcare is not reliant on NICs.

The national insurance structure is administration by the office of sociable security, that was reorganised in 1991 and spilt into the following organizations: benefits agency; information technology service firm and contribution agency.

The contributions agency is responsible for the contribution made to the NIS. The state benefits that are associated with NICs, i. e. contributory benefits are the following

Incapacity benefits;

Jobseeker's allowance;

Maternity allowance;

Widow's pension and

Retirement pension.

National insurance contributions are based on cash flow and payable by employers, employees and self applied persons. A couple of four classes of NICs, each with some other contribution rate, and entitlement to the contributory benefits depends on the course of NIC paid.

Generally persons under 16 age group and over retirement age do not have to pay NICs. The liability under each category depends on if the individual is employed or one-man shop, therefore, the variation between a deal of service (employment) and a deal for service (do it yourself job) is important not limited to income tax purposes, also for NIC liability. See four classes of NICs in (Appendix 4)

Corporation tax

"Corporation Tax is a tax on the taxable profits of limited companies and some organisations including clubs, societies, organizations, co-operatives, charities and other unincorporated systems". (HM Earnings & Customs, 2013)

The economic aftereffect of corporate taxes is determined by the machine of corporation taxes that is followed. The main systems for taxing company gains being the following: Traditional system; imputation system and spilt rate systems. Firm tax was created on 1965 and applies to all resident bodies' commercial including specialists' unit trusts and unincorporated organizations, however, not to partnerships, although certain limited liability partnerships are treated as companies or local regulators. The UK taxes system did not differentiate between incorporated and unincorporated businesses; they were both liable to pay income tax on the income. However, companies, not being individuals, weren't qualified to receive personal reliefs and allowances, nor were the liable to pay income tax at graduated rates, but paid tax at the basic rate on almost all their income. In case a company is situated in the UK, it will have to pay.

"Corporation Taxes on all its taxable earnings wherever on earth those profits come from. If a company isn't located in the UK but operates in the united kingdom - for example via an office or branch (recognized to HMRC as a 'long term establishment') - it will simply pay corporation tax on any taxable income arising from the UK activities". (HM Income & Customs, 2013)

Capital increases tax

"Capital Gains Tax is a duty on the profit when you sell or hand out something (an 'property') that has increased in value". (GOV. UK, 2013)

According to Lymer and Oats (2009) - 'preceding to 1963 all capital benefits were free of tax. During the period 1963 o 1965 short-term capital gain were recharged to income tax. A separate tax, capital gains duty was unveiled in 1965 to hide capital gains, both short-term and long-term'. Capital increases tax is recharged on any gain causing when a chargeable person makes a chargeable disposal of the chargeable asset. Taxes is billed on so much of the gain as is remaining after taking into account any exemptions or relies and after deducting any allowable loss'.

CGT taxable individuals include individuals who are normally resident in the united kingdom, trustees, PRs and associates. In the case of partnerships, each partner is charged singularly with his/her talk about of the relationship gains. However, businesses aren't chargeable for CGT purposes; the company tax to which they are matter is levied on company profits which include chargeable gains. CGT can only just start on the disposal of a secured asset. A little change in specific conditions might make them legally responsible to pay CGT when they don't expect it.

"CGT might be payable when give something away, sell a valuable item or copy assets in a divorce. Whenever a person inherits a secured asset, there is only going to be Capital Gains Taxes to pay if he/she later sell or get rid of it and make a gain" (HM Income & Customs, 2013). CGT is not payable on loss of life.


The essay implies that taxation is the procedure by which the government imposes charges on people and corporate businesses and it can benefit both the public and business as an entire. However it shows that UK use different type's fees to support their monetary budget. UK has income tax, corporation taxes, capital taxes, national insurance, etc, where the Tax is the main tax in the united kingdom and everyone has to pay tax.

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