F6 Taxation (UK)

Taxation (UK) Section A: The UK tax system Section B: Income tax liabilities Section C: Chargeable gains Section D: Corporation tax liabilities Section E: Inheritance tax Section F: National insurance contributions Section G: Value Added Tax Section H: The obligations of tax payers and/or their agents

Section A: The UK Tax System Designed to give you knowledge and application of: A1. The overall function and purpose of taxation in a modern economy A2. Different types of taxes A3. Principal sources of revenue law and practice A4. Tax avoidance and tax evasion A1. The overall function and purpose of taxation in a modern economy A2. Different types of taxes A3. Principal sources of revenue law and practice A4. Tax avoidance and tax evasion

 Describe the purpose (economic, social etc.) of taxation in a modern economy. [2]  Explain the difference between direct and indirect taxation. [2]  State the different sources of revenue law. [1]  Explain the difference between tax avoidance and tax evasion. [1] Learning outcomes Introduction

Economic purpose is to finance government spending & to decide the portion of economic resources that have to be left for the private sector after the government has fulfilled its spending plans. Social purpose Taxation policies are used to encourage social justice The income / capital / expenditure principle IncomeCapitalExpenditure  Tax is payable by people who have income, the people with lower income can be taken out of the tax net by using the personal allowance  Tax on capital ensures that people cannot avoid tax by having no income & living off the disposal of capital assets  Tax on expenditure is only incurred by those who spend, not those who save Describe the purpose (economic, social etc.) of taxation in a modern economy

Indirect taxesDirect taxes Imposed on what people spend rather than what they earn Tax on spending e.g. VAT Regressive Tax on income OR capital Imposed directly on taxpayer e.g. income tax, corporation tax, NIC Progressive Explain the difference between direct and indirect taxation.

State the different sources of revenue law Statute law Statements & documents issued by HMRC  Acts of parliament contain basic rules of the UK taxation system  This legislation is altered & added to by the Annual Finance Act & consolidating statutes  Some detailed legislation is made by Statutory Instruments, which do not need to go through the parliamentary procedure required to pass an Act of Parliament HMRC issues the following documents to explain how the law is to be implemented in practice:  Statements of practice  Extra-statutory concessions  Press releases and explanatory notes  Internal guidance manuals  Pamphlets Case law serves to interpret & clarify statutes

Tax avoidanceTax evasion  Tax avoidance is any legal way of reducing the amount of tax payable  Arranging affairs in the most tax efficient way. E.g. using tax deductions, changing one's tax status through incorporation, or setting up a charitable trust or foundation  Tax evasion is the intention to deliberately mislead HMRC, and is illegal  It could be providing HMRC with false information OR  Not giving HMRC information that they are entitled to have Explain the difference between tax avoidance and tax evasion Refer to Question 1 from the Quick Quiz on page 8

Code of ethics & conduct Objectivity Professional competence and due care IntegrityConfidentiality Professional behaviour Accountants have responsibilities towards clients as well as HMRC. Members are required to comply with the following principles: Code of ethics & conduct

RECAP  Describe the purpose (economic, social etc.) of taxation in a modern economy. [2]  Explain the difference between direct and indirect taxation. [2]  State the different sources of revenue law. [1]  Explain the difference between tax avoidance and tax evasion. [1]