Taxation: Analysis of Tax System and Legislation in the UK

TAXATION

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1:..................................................................................................................................3
TASK 2:..................................................................................................................................9
TASK 3:................................................................................................................................12
TASK 4:................................................................................................................................15
CONCLUSION..............................................................................................................................19
REFERENCES..............................................................................................................................20

INTRODUCTION
Taxation simply means imposition of various types of levies on the individual or different
types of assesses such as partnership firm, local authority, company and so on in almost every
country in the world. The primary purpose of the taxation is to raise revenue for the government
department so that they can meet out the expenditure they incurred for public welfare, salary
payment to various government employee etc. Further these funds also helpful for those needy
people who does not food and shelter to meet out their daily needs. Further the taxation has been
divided into two different categories that is direct tax which includes mainly income tax that is
levied on the income of various assesses. The other one is indirect tax that has been levied on
sale of goods and services and such tax has been collected ultimately from the consumers. In this
report different case scenarios are being depicted and accordingly these are being discussed in a
detailed manner along with their recommendation and conclusion thereof. The purpose of this
report is to analyse the taxation system along with the legislation which governs the same
(Princen, and et.al, 2020).
MAIN BODY
TASK 1:
Tax-
Tax is levied on the total income of the previous year of every person. Tax do not pay all types
of income such as dividend received from shares, income earn from individual saving account.
The base rate of income tax is 20%. HM revenue and custom is responsible for collecting the tax.
There are two types of tax-
Direct Tax-The tax is directly levied on the income of person is known as direct tax for example-
salary income, income earn from business and income earn from trust etc.
Through the direct tax the government earned more revenue. The income is determined of the tax
payer according to specific manner for example if income earn from salary then deduction is
allowed on the personal allowance, saving interest and dividend. The U.K. Residents pays the
taxes on the U.K. Income, to safe the double taxation the U.K. Government has agreements with
many countries to offset the U.K taxes has already paid. If the income of a person is £ 100001 to
£125140 then marginal income tax is 61.50%. The direct tax is paid on the earning of person.

Indirect Tax-The tax is charge on the price of good and service then it is known as indirect tax
for Example-Good and service tax, custom duty and value added tax.
Custom Tax – The tax is levied on the import goods that is the goods which is import from
another country. The government uses this tax to increases the industry size and generating
revenue sources.
Value added tax – The tax is paid goods and services by the registered businesses. It is paid by
the seller but the economic burden of the tax is bear by the consumer. The vat rate is 5% on the
domestic fuel and 0% on the food and children cloth.
Excise Tax – It is a type of indirect tax and paid goods which is produced within the country. It
is also known as central value added tax (Dey and Jena, 2018).
Tax has paid at three different level of government.
Central Government-It revenue comes from income tax, value added tax and corporation tax.
Local Government-It revenue comes from grant received from central government and council
tax.
Devolved Government-It revenue comes from tax has charge on land and building (Kurauone
and et.al 2020).
Taxation system of UK-
UK government has made more simple and transparent tax policy which can make better
globalisation trading market in the world. To improve the business environment helps the
multinational companies and investors to invest in a company then it tax should be an asset of
the UK. Efficiency tax system provide the needed for long term planning. In 2010 UK has
perform the corporate tax road map which has includes-
 Stable a good tax system which avoids to unnecessary changes in tax legislation
 Too few reliefs such as deduction and allowances with a lower tax rates.
 Tax policy changes according to modern business practices (Alessandrini, 2021).
The overall function and purpose of taxation in modern U.K economy.
The purpose of taxation to earn revenue and pay the expenses to the government. The objective
of tax collected to finance the government. To use reduced pollution, efficient allocation of
resources to achieve the objective of economy. The public expenditure increases at least but the
national expenditure increases fast so that should produce revenue. To increases the economic
growth, the government should reduce the marginal tax so that diversion of resource. The taxes

are collected of the taxpayer is used for the welfare of people. Contribution is the relationship
between tax paid and benefits received and it is used to motor fuels to finance the construction
and road maintenance. The main purpose of tax collected is to redistribution of income
(Newman, Mwandambira, and Ongayi, 2018).
The corporate tax road focuses on four main areas-
 Tax system of territorial -UK focuses on territorial tax system that is tax is levied on
profits which has earned in the UK.
 To reduce the corporate tax law. UK has not charge the local tax on the company’s profit.
The currently tax rate is 20%.
 To improve research and development tax credit- To expenses in research and
development overall 130%tax deduction is allowed.
 The patent box-The full exemption is apply in finance company where the company
finances fund for issue of right share (Martins, Dinis, and Lopes, 2018).
For an individual the following tax rate and exemptions will apply-
Personal allowance of £9940(reduce the income exceeding £100000)
Slab Tax rate
Up to £12570 0%
First £12570-£50270 20%
Next £50270-150000 40%
Over £150000
45%
.
National insurance-If monthly income is lie between £149 and £797 then employee has
contributed 12perctange in national insurance and contribute 2perctange above this limit. If
income is above £148 per week then employees are contributing 13.8perctange. From April
2014business will be eligible for a new £2000 employment allowance.
Incentive Schemes-The tax relief is also available to contribute in pension scheme.

Capital gain tax -In UK capital gain tax rate is very lower. The higher rate is 28perctange with
available some reliefs which is support in business activities. In currently £10900 is annual
exempt amount (Markus and Paffendorf, 2022).
Statutory residence-In April 2013 the government has come a statutory residence test which
provides certainty to an individual with better living and arrangements. Such accommodation is
available to an individual which has spent the number of days in the UK with the family and
employment.
Non domicile-Non domicile status affects the tax liability of UK. Non domicile has to pay the
tax on the money sent in UK.
Mrs Thompson has annual income on £60000 which comes under slab rate of 40perctange. For
first £12750 the tax rate is 0 percentage next (£60000-£12570) =£47430 tax pay 20perctange that
is £9486. In nation insurance he will eligible the tax relief of £2000.
Difference between UK taxation, India taxation, US taxation.
Basis India UK USA
Slab rate In India the tax system is
divided into the slab
normal people-up to 60
senior citizen -between 60
to 80
super senior citizen-above
80
In UK there is no
age band all the
assesses have pay
tax.
In USA the slab is
divided on the basis
of
1.single-unmarried
and divorced
2.married-the
income merge with
her husband.
3.Unmarried-the
income is not
merge with
husband, filing
return individually
due to lower
income.
4.Household head-
the qualifying