UK Tax Systems and HMRC Administrative System

This report concludes the various UK tax systems with the HMRC administrative system. It highlights the differences observed in employed and self-employed individuals, along with their advantages and limitations in UK taxation. The report also discusses tax avoidance and evasion, its implications on government, and presents different types of taxes in the UK. Additionally, it covers tax planning problems for clients and concludes various sources of taxation law and professional codes conduct in taxation.

THE U.K TAX SYSTEM

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
1.1 The difference between employment and self-employment, their advantages and
advantages to the client................................................................................................................3
1.2 The difference between Tax avoidance and Tax evasion and its implication on the clients
and government............................................................................................................................5
1.3 the purpose and types of taxation in the UK and the tax planning issues for the client and
government .............................................................................................................................6
1.4 The different sources of the tax law, the purpose of the professional and ethical framework
in which accountants operate. .....................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................9

INTRODUCTION
The united kingdom's tax system is complex and one of the longest tax codes in the world.
It compulsory to have a National Insurance Number to pay taxes In UK. Present reports specifies
the HMRC administrative system in context to UK tax system. This reports presents the
difference and advantage of employment and self-employment. The report also gives the
overview on the tax avoidance and tax evasions, and its implementations. The report presents the
different type of taxation system in UK . The report also presents the different laws of tax and
the frame works in which accountants operates.
1.1 The difference between employment and self-employment, their advantages and advantages to the
client.
National insurance contribution are made through payroll and income taxes. Employees ans self-
employed person pay different tax and national insurance in United Kingdom. In UK tax system
the employment and self-employment is defined as:
Employment: a person is said to be employee if he is having a fixed salary for the fixed
number of hours. Employee is eligible to get holidays, sick pay, maternity/paternity leave and
similar benefits. The employee has to be work according to the employer decisions. Salary of a
employee will includes compulsory insurances to cover your health, safety and other liability
(Lang and et.al., 2015). The employees tax and National Insurance Contribution will be deducted
from the salary and be paid to HMRC. This system is known as Pay As You Earn system.
Self-employment: a person is called self-employed if he involves the person for whom he
is doing the work in order to be paid. A person who is self-employed can work for different
people and can undertake the work when and where required. In the context of the Income tax
and National Insurance Contribution, self-employed is person are responsible for paying right
amount of income tax and HMRC, he must be registered as self_employed with HMRC. Under
self-assessment tax system, the person has to complete an annual tax return.
The advantage and disadvantage of employment and self-employment are:
Advantage of employment Disadvantage of Employment
1. The salary payment of the employees is There is the less chance in changing the term of

fixed. the contract hence there is less opportunities for
future growth.
2. they are eligible to get paid holiday or sick
leaves.
Employees have to work under the employer's
control and direction.
3. they get auto enrollment into a pension
scheme.
Employees has to give prior notice before
leaving the company, they cannot leave without
giving any notice (Dustmann and Frattini,
2014).
4. they get ability to expect all rights granted
under the contract of employment.
They have to pay higher rate of NIC.
5. employees get opportunity for further
training/certification at company expenses.
There would be lack of flexibility regarding
holiday dates and length of holiday.
6. proper payment of salary on time and less
deduction in other taxes from the income.
Increasing in salary payment are likely to be
minimum and infrequent.
The advantage and disadvantage of self employed are:
Advantage of self-employment Disadvantage of self-employment
1. in self-employment there is a freedom to
work
There is no job security in self-employment
and because of no more work available, there
could be a state of no longer in employment
can come
2. there is greater flexibility and control over
working.
There is no benefit of paid holiday in self-
employment (Gemmell and et.al., 2018).
3. there is a benefit from the lower rates of NIC
and more willing to support in other taxes.
A requirement to bear cost of the business.
4.there is an advantage of having cash flow There will be no employment law protection.

5. to be able to react to market forces and can
charge more for their services according to
market.
A requirement to put right poor quality work at
own cost.
1.2 The difference between Tax avoidance and Tax evasion and its implication on the clients and
government.
Basis of Difference Tax avoidance Tax Evasion
1. MEANING It is method of taking unfair
advantage of the short coming
and minimizing tax liability is
tax avoidance.
It is an illegal act which is
made to escape from paying
tax is known as tax evasion.
2.ATTRIBUTES It is immoral in nature, which
involves bending the law
without breaking it.
It is completely illegal act and
objectionable
3.CONSEQUENCES It results in postponement of
tax
It results in either penalty or
imprisonment.
4. OBJECTIVES It aims at minimizing the tax
burden by applying the script
of law (Payne and Raiborn,
2018).
Its objective is to reduce tax
liability by exercising unfair
means.
5. CONCEPT It is taking unfair advantage of
the shortcomings in the tax
laws.
It is deliberate manipulations
in accounts which results in
fraud.

Tax is the main source of revenue for any business, it helps the government to make
policies and planning for the growth of the country and helps in execution of the policies. The
impact of Tax evasion and avoidance to the client and the government are:
 Tax avoiding is lucrative business which which costing a huge amount of revenue to the
government every year.
 Tax evasion and avoidance reduces the government tax revenue of the country
(Braithwaite, 2017).
 It has become almost impossible to rise in employment levels or deflation in prices.
 In UK the government are implementing the budget cuts to cope with national debts
results in increasing of inflation in country (V. Ruf and Wamser, 2015.)
 Inflation leads to the increase in prices of goods and services which gives the burden on
the common public of the country.
 It is because of this reason that tax avoidance shifts the tax burden from the evasive and
tricky corporation to the honest middle and low income earning citizen
1.3 the purpose and types of taxation in the UK and the tax planning issues for the client and
government
The types of taxation in UK are:
 To collect the funds for the proper working of government. The tax collection is the
important source of funding for the proper functioning of the state.
 Tax on health hazard goods helps in less purchase of the goods. Higher taxes on the
health hazard goods which can be legal will reduce in the consumption of such goods.
Tax also protects local and small scale industry and try to make them more profitable. By
increasing the tariffs and import duty tax and charging lower tax from local products may
boost the demands of the products from domestic company.
Direct and indirect are two types of taxes in UK: (Snowberg, 2018.)
Direct taxes are the taxes that are collected from the people or business imposing entity.
Direct tax that are imposed by the UK government are, Income tax, Corporation tax, Capital
Gains tax and National Insurance tax etc.

 Income tax: It is the tax imposed on the income of the people. Most of the income of
the government come from income tax (Weber, 2013). Income tax allowance are given
to the employees up to certain percentage. Corporation tax: people who lives in UK or domiciled in UK has to give the share of
their profit to the government. The company situated or controlled its management by
UK are comes under the scope of corporation tax. Capital Gains tax: It is the tax imposed on the profit of selling price of an asset. It is
also a type of income tax on the gain achieved either by selling or by exchanging
capital assets like bonds, shares etc (Duclos, Makdissi and Araar, 2014). Inheritance tax: If a person domiciled in a country has expired than he has to pay the
inheritance tax.
 National Insurance: it is also charging some share on the profit or income of the
person, it is a type of contribution which people make for ill and uneducated people of
country.
The advantages and disadvantages of direct tax are:
Advantages of Direct tax Disadvantage of direct tax
Direct tax implied on the basis of equality.
Bigger the income bigger the tax rate.
Direct taxes leads to tax evasion and corruption
in society.
The amount of tax and its time period is certain
and definite to the tax payer.
There are several formalities and procedure to
pay direct tax which leads to inconvenience to
the people.
The cost of collection of direct tax is low
(Meade, 2013).
Heavy taxes will discourage saving and
investment.
Indirect taxes are the taxes which are imposed by government on the goods and services in
a country. Some of the indirect taxes collected are VAT, Stamp Duty tax, Custom & Excise
Duty tax etc. the advantage and disadvantage of indirect tax are:

Advantage of indirect tax Disadvantages of indirect tax
Through indirect tax poor can also contribute. The cost of collection of indirect tax is quite
heavy.
Indirect tax are much broader than direct tax Indirect taxes causes to rise in price of goods
and services (Smith, 2013).
The issues for tax planning in UK are:
 all the government are planned to attract more foreign direct investment. A proper tax
planning is needed to enhance the revenue of the country which will attract the foreign
trade to invest in the local market (Kilkey, 2018). While tax is recognized as being an
important factor in decisions on where to invest.
 In the time of economic crisis, people are more concerned to pay their taxes on time.
 Governments and regulations, have aware of the aggressive tax planning and aware of
the people and companies with tax evasions, and will make sure that that will pay their
share of tax
1.4 Providing various sources of the tax law and purpose of professional and ethical framework in
which accountant operates
No single sources are there for UK taxation law. Rules are enacted by the Acts in the
parliaments. HMRC in UK issues several statements and notices explaining implementation of
law in real life context. Different taxation law in UK are: (Raiborn, 2018)
 Statute Law: it is written statement which is passed by a legislative on level of state or
federal. It sets general proposition of law that court and is applicable to particular
scenarios. Rules are enacted of UK taxation system are corporate several parliament
statutes. Statute revised in the purview of Annual Finance Act annually, Chancellor of
Exchequer forwards the same upon the budget proposals.
 European Union (EU) Law: There exists membership of EU between the bonding to EU
law. Conflicts if any found between EU and member state law, priority is taken by EU

law. It is applicable to other category of law and EU law has major influence on UK
taxation law which could increase in the future. Currently, impact of EU law can be
found on VAT tax.(Leipziger, 2017)
 Case law: The taxpayers and authorities of tax disagrees over representation of such
taxation Act. This has increased several tax cases brought forward in the courts. The
judges decisions in these situations are important part of UK Taxation law.
Professional conduct in Relation to Taxation(PCRT) laid out principle and standards of
behavior that all members must follow in their tax work. The PCRT is written by ATT and other
five leading UK tax and accountancy bodies. PCRT is a document that has been produced to give
specific guidance to their members on how they should act when involved in tax work. The
purpose of the professional and ethical framework are: Integrity: This approach states that member has the liability to act honestly in dealing
with all his customers, tax authorities mainly and various parties and do nothing which
may affect interests of listed parties in any manner. Objectivity: Relationships which bias and influencing professional judgment of member
should be avoided up to a high extent (Buenker, 2018). A member is under duty in
explaining material risk if any and tax planning should be made. He is obliged in
following his professional body’s rules on disclosing of and is accountable to
commission. Professional competence and due care: He has the duty when advising his client to
effectively serve interest that lies in legal framework of client (Egger and et.al., 2015).
Moreover, he has the liability to behave in a professional way to make ensure that client
may be satisfied and better services are provided to them in the best possible manner.
 Professional behaviour: It is the duty of member to act in diligent way so as to maintain
his professional behaviour and repute quite effectively. He should behave in professional
manner and should have courteous behaviour and should be ethically correct as per
standards.
CONCLUSION
By summing up above report the various UK tax systems with HMRC administrative
system are concluded. It has been concluded in the report differences observed in employed and
self employed with the advantage and limitations in UK taxation. Report also stated the tax

avoidance and tax evasion with its implications on government. The report presents different
type of taxes in the UK and tax planning problems for the clients. Various sources of taxation
law and professional code conducts in taxation are also concluded in the report.

REFERENCES
Books and Journals:
Braithwaite, 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.
Buenker, J. D., 2018. The Income Tax and the Progressive Era. Routledge.
Duclos, J. Y., Makdissi, P. and Araar, A., 2014. Pro-poor indirect tax reforms, with an
application to Mexico. International tax and public finance. 21(1). pp.87-118.
Dustmann, C. and Frattini, T., 2014. The fiscal effects of immigration to the UK. The economic
journal.124(580). pp.F593-F643.
Egger, P, Merlo, V. and Wamser.G. 2015. Consequences of the New UK Tax Exemption
System: Evidence from Micro‐level Data. The Economic Journal, 125(589), pp.1764-1789.
Gemmell, N. and et.al., 2018. Corporate Taxation and Productivity Catch‐Up: Evidence from
European Firms. The Scandinavian Journal of Economics. 120(2). pp.372-399.
Kilkey, M., 2018. Lone Mothers Between Paid Work and Care: The Policy Regime in Twenty
Countries: The Policy Regime in Twenty Countries. Routledge.
Lang, M. and et.al., 2015. Introduction to European tax law on direct taxation. Linde Verlag
GmbH.
Leipziger, D., 2017. The corporate responsibility code book. Routledge.
Mattozzi A. and Snowberg. E 2018. The right type of legislator: A theory of taxation and
representation. Journal of Public Economics.159. pp.54-65.
McGee, R. W., 2014. The Ethics of Tax Evasion: A Case Study of Brazil. In Handbook of
Research on Economic Growth and Technological Change in Latin America (pp. 374-393).
IGI Global.
Meade, J. E., 2013. The Structure and Reform of Direct Taxation (Routledge Revivals).
Routledge.
Payne, D. M. and Raiborn, C. A., 2018. Aggressive tax avoidance: A conundrum for
stakeholders, governments, and morality. Journal of Business Ethics. 147(3). pp.469-487.
Smith, D. A. 2013. Tax crusaders and the politics of direct democracy. Routledge.