TX – TAXATION
AF
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TX – TAXATION
THE UK TAX SYSTEM
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TX – TAXATION
TAX
A tax is a compulsory financial charge or some other type of levy imposed upon a taxpayer (an individual or
legal entity) by a governmental organization in order to fund government spending and various public
expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law.
Tax is collected by HMRC on behalf of the government. It's used to help provide funding for public services
such as the NHS, education and the welfare system, as well as investment in public projects, such as roads, rail
and housing.
PURPOSE OF TAX
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TX – TAXATION
TYPES
QUESTION
Which of the following taxes is NOT paid by a company?
A Income tax.
B Corporation tax
C National insurance contributions
D Value added tax
A is correct Answer
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TX – TAXATION
DIRECT V INDIRECT TAX
QUESTION
Which of the following is an indirect tax?
A Corporation tax
B Capital gains tax
C Income tax
D Value added tax.
D is correct Answer
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TX – TAXATION
REVENUE V CAPITAL TAX
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TX – TAXATION
TAX AVOIDANCE V TAX EVASION
QUESTION
For each of the following explain whether it is an example of tax evasion or tax avoidance.
● Selling a capital asset in May 2023 instead of March 2023 to ensure that the gain is taxed in a
later tax year. (Tax Avoidance)
● Altering a bill of £700 to read £7,000 so that a larger tax deduction is claimed on your tax
return. (Tax Evasion)
● Moving funds into an ISA account so that interest can be earned tax free (Tax Avoidance)
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TX – TAXATION
TAX AVOIDANCE SCHEMES
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TX – TAXATION
SOURCES OF TAX LAW
Tax legislation / statutes
Adherence is mandatory. It is updated every year by the annual Finance Act.
The Government may issue Statutory Instruments which are detailed notes on an area of tax
legislation.
Case law
This refers to decisions made in tax cases. The rulings in the courts are binding and so provide guidance
on the interpretation of tax legislation.
HMRC guidance
This is issued due to the complexity of the legislation
(a) Statements of practice
a. sets out how HMRC intend to apply the law
(b) Extra statutory concessions
a. Sets out circumstances in which HMRC will not apply the strict letter of the law where it
would be unfair.
(c) Internal guidance manuals
a. HMRC’s own manuals which are available to the public
(d) Press releases
a. provide details of a specific tax issue, for example, used to communicate the information
stated in the annual budget
(e) Pamphlets
a. Provide explanations of various tax issues in non-technical language.
Other countries
The UK has entered into Double Tax Treaties with various countries. These contain rules which prevent
income and gains being taxed twice, but may include a non-discrimination provision preventing a
non-resident individual from being treated less favorably than a resident individual. Where there is no
double tax treaty the UK system will allow relief for double taxation.
The European Union
The aim of the EU is to remove barriers and distortions due to different economic and political policies
imposed in different member states.
Although EU members do not have to align their tax systems, members can agree to jointly enact
specific laws known as Directives. The most important example is VAT, as EU members have aligned
their policies according to EU legislation but the members do not need to align the rate. Cases have
been brought before the European Court of Justice regarding the discrimination of non-residents, some
of which have led to a change in UK tax law.
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TX – TAXATION
STRUCTURE OF UK TAX SYSTEM
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TX – TAXATION
ETHICS
As an accountant, you are a taxpayer’s agent.
A taxpayer may appoint an accountant to prepare and submit a tax return, but it is the taxpayer, not the
accountant, who is responsible for the return and paying tax.
In dealing with clients, the ACCA requires a member to uphold its standards. The ACCA’s code of ethics and
conduct sets out five fundamental principles that members should abide by. These are:
If a client fails to correct a material error/omission or failure, the accountant must:
(1) Cease to act for the client. An accountant should not provide details to HMRC of why they are
ceasing to act.
(2) Inform HMRC that he is no longer acting for the client.
(3) Make a money laundering report.
The money laundering report which sets out the situation is made to the Money Laundering
Reporting Officer (MLRO) within the accountancy firm.
The MLRO must decide whether to make a report to the National Crime agency (NCA). Where a
report is made the client should not be informed as this may amount to tipping off, which is an
offence.
A report to the NCA does not remove the requirement to disclose the information to HMRC.
Dishonest conduct of tax agents
● There is a civil penalty of up to £50,000 for the dishonest conduct of tax agents.
● In cases where the penalty exceeds £5,000, HMRC may publish details of the penalized agent.
● With agreement of the Tax Tribunal, HMRC can access the working papers of a dishonest agent
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TX – TAXATION
QUESTION
An ACCA member discovers that a client has deliberately not declared a source of income on their tax
return. Which of the following statements is correct?
A The member should immediately notify HM Revenue & Customs of the error.
B The member should notify the client of the error and explain the potential consequences before
considering ceasing to act
C The member must immediately make a report to the National Crime Agency due to the possibility of
money laundering and notify the client that they have done so.
D The member should cease to act for the client if they refuse to disclose the error and advice HM
Revenue & Customs that they have ceased to act and the reason why.
A, C and D are correct Answer
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