University Taxation Report: Principles of Taxation, UK Tax System

This report provides a detailed analysis of the principles of taxation, focusing on the UK tax system. It begins with an introduction to taxation and its objectives, followed by an in-depth examination of progressive and regressive tax systems, including examples and a comparison to determine which system is fairer. The report then explores the sources of tax laws in the UK, covering income tax, National Insurance, VAT, corporation tax, council tax, business rates, excise duties, and other taxes. Finally, it differentiates between tax avoidance and tax evasion, discussing their implications for both individuals and the government. The report concludes by summarizing the key findings and offering insights into the complexities of the UK tax system.

Running head: Principles of Taxation
Principles of Taxation
Name of the Student
Name of the University
Author Note

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Principles of Taxation
Table of Contents
Introduction................................................................................................................................2
The UK Tax System...................................................................................................................2
Tax Systems...........................................................................................................................2
Sources of Tax Laws..............................................................................................................4
Tax Avoidance versus Tax Evasion.......................................................................................6
Conclusion..................................................................................................................................8
References..................................................................................................................................9

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Introduction
The basic aim of taxation policy is to raise fund from the society and with the help of
the fund do welfare of the society. Tax are one kind of payment that the government charges
from the citizen of the country (Parker 2018). It is a mandatory payment and each person
have to contribute in the limit in which it falls. Tax can have classified as per its nature into
progressive tax and regressive tax. In the upcoming discussion it will see about the nature of
tax, how they are being implement and what are the methods from which an individual avoid
payment of tax.
The UK Tax System
Tax Systems
Tax can be classified as per its nature into two heads Progressive Tax and Regressive
Tax.
Progressive Taxation policy is a policy in which the taxation amount rises as the
income of the individual rises (Doerrenberg and Peichl 2013). The main basic of this taxation
policy based on individual income; it is being calculated on the income of the individual. It
keeps on changing the slab of the tax as per the individual. It keeps record of each money
which the person earns and by the marginal addition of money to its current income it takes
individual to higher slab of income and as it become a high payable income so the tax is also
being lived as per high rates. It simply means higher the individual earn higher tax it has to
pay. This tax system more focus on high class of income rather than middle class or below
that, it helps the low class of people to pay tax as per their income (Chiroleu-Assouline,
Fodha 2014). This taxation policy removes the inequality of tax as it takes high taxes from
high-class people and low tax from low people. It uses marginal tax rates it means it charge
high tax on the extra income, which the individual is earning.

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For example, Income tax as this is charged as per the income of the individual,
Income on investment is also progressive as it is being charged on the basic of the income of
the individual. It includes all the activities, which can be direct or indirect related to the
income of the individual.
Regressive Taxation policy is refers to the taxation policy, which is imposed on the
expenditure of the individual; it is calculated on the amount of money, which the individual
have expended, on a certain product (Piketty,Saez and Zucman 2017). This system is based
on expenditure it does not take income part so this system is very harsh to low income
individuals as they have to pay more tax than high class of people. It supports the inequality
law of income as this system is very harm form low class as high class income individual
does not get affected by it (Bogenschneider 2015). Tax levied on consumption of an
individual so this does not include the concept of tax on marginal income. It takes
consideration any uniform rate that which be applicable for each class of individual.
Example of Regressive Taxation is Sales tax as it imposed on uniform rates and not
on income basic, Property tax as it imposed on value of property, Different types of fees,
which are imposed by the government, which does not take the income of the individual. It
takes all the activities, which related to the consumption of the individual.
Comparison of Progressive and Regressive Tax are:
Progressive Tax Regressive Tax

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 Progressive tax policy calculated upon
the income of the individual. It takes
all the activities related to the income
of the specific entity
 Regressive tax policy take into
consideration all the activities
related to the consumption of the
individual.
 The tax slab rises as the income of the
individual rises and if the income does
not rise it have to pay on the same
slab.
 There is no such slab based on
income the tax levied at uniform
rates all the products irrespective
of individual.
 The tax policy reduce the inequality of
income as it charge low from low class
people and high from high-class
people.
 It is opposite of the progressive as
it levied more tax on low taxpayers
and low tax on high taxpayers.
 Examples are income tax, income on
investment.
 Example such as sales tax,
property tax.
As per the discussion which been shown above about progressive and regressive, it
can concluded that the progressive taxation policy is a policy which the government should
imposed as this the policy which help the government to get more revenue (Davis,Hirsch and
Padley 2014). As it, mainly focus upon the income of the individual and it get increase as the
income of the individual increase so these help the government to get more revenue from the
taxation policy. Even this will help the government to remove the inequality of income which
is been carried by the high-class people and it also let the government to decrease the burden
of tax on low class people who do not able to earn much and it will also help to reduce the
poverty line of the country. It will be win-win situation for both the government and the
individual so they should choose progressive method of taxation policy.

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Sources of Tax Laws
A government raise its funds from many sources. The sources are:
1. Income tax- The first source of the tax is income tax and each individual have
to pay on the amount, which they earned. This is different for different
individual as there is a slab of tax rates and each individual have to pay as per
their slab limit. It is one of the biggest source of income of tax for the UK.
HM Revenue and Custom of UK Government collect this tax.
2. National Insurance- It is also one of the source of income for the government
of UK. This is a type of taxation policy, which is based on employees and
workers working in the country (Ward and Rhodes 2014). This system has
certain limits and as the individual fall upon the limit it has to pay the tax,
these taxes are collected for the welfare of labour class. It is big part of
government revenue and HM Revenue and Custom collect this.
3. VAT- It is one of the largest source of income to the UK Government, it is
levied on the goods and services which are done by the businessman in the UK
and as well as any goods or services which are imported by European Union
(Liu and Lockwood 2016). There is different slab for different goods and
services and some items has excluded from the VAT. This is also being
collected by HM Revenue and Custom.
4. Corporation Tax- This taxation is levied on the business, which is carried in
UK or doing business outside UK but having one branch in UK (Devereux,Liu
and Loretz 2014.). They have to pay upon their profits, which they have earn
by doing business in the country. The central government of UK collects this.
5. Council Tax- This tax levied on the property of the individual. They have to
pay certain amount upon the value of the property, which they owned in UK

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(Heald, Geaughan and Colin 2013). The central Government collects this tax
and it also a big source of the income.
6. Business rates- This tax levied upon the property, which used in the business.
It is being calculated upon the property rateable value of the individual. It can
be an office or shop or any other premises, which used for business purpose.
This is collected by the central government and it also hold add some revenue
to the government
7. Excise Duties- It also contribute some amount to the revenue of the
government (Pope and Waters 2014). It is being levied upon the
manufacturing of goods, the tax is being charged on the manufacturing amount
and not upon the sale amount. It is one of the indirect tax method of taxation.
The HM Revenue and Custom collect it.
8. Others tax- Except the one which are mention above there are many tax
which the government imposed upon the individual such as stamp duty as it is
imposed upon the transfer of the property from one to another. Some other tax
is airport tax, capital gains and carbon tax. These are some taxes, which also
collected by the government, and it can be different for different individuals.
Tax Avoidance versus Tax Evasion
Tax Avoidance refers to the avoiding of the tax by using the loopholes, which are
there in tax system (Armstrong et al.2015). An individual to minimize the amount of tax,
which it has to pay to the government, does it. This method is a legal way by using some
shortcoming in the tax plan this done so it does not affect or damage the law. It can be done
before the assessment of the tax of the individual and planning should have made before that
only.

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Tax Evasion is the method, which used to reduce tax burden by unfair trade practices.
It is the illegal way, which the individual uses to decrease its taxable amount (Braithwaite
2017). It done after the tax liability of the individual has found out. The individual can be
punishing for using such activities. It can be done by showing some unreal expenses or
disclosing of manipulated accounts.
The comparison between Tax Avoidance and Tax Evasion has discussed in below table:
Tax Avoidance Tax Evasion
 Reducing of tax liability by taking
the advantage of the loopholes
present in tax structure of the
country (Braithwaite 2017).
 Under this method, the individual
reduce its tax by unfair means or by
damaging the tax structure of the
country.
 Reducing the tax liability.  It is manipulation of tax law.
 It is not a criminal based activity.  It is a criminal based activity and
individual can punished (Alstadsæter,
Johannesen and Zucman 2018).
 It is the postponed of the tax.  The individual founded guilty can be
penalised and even send to
imprisonment.
 It is done before the tax liability
have been founded by the
individual.
 It is done after the individual have
found out it liability of tax.
 It is justified in the eyes of the
law.
 It is not justified in the eyes of law.
 It can be done by planning.  It can done by manipulating the

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accounts.
The implications on the government is that it get less revenue compared to what it
should have got (Hope,Ma and Thomas 2013). As the government does not get revenue so
employment generation can made as result of this, the economy of the country gets affected.
The implications it has on the individual is the individual is able to minimize its tax
but if the individual is using tax evasion and been caught by the government than it can be
penalised and even imprisonment can take place. The individual can use tax avoidance as it
method of reducing its tax liability, as this method is a legal method so it can be used any
class of individual.
Conclusion
The above discussion has concluded as a government biggest source of income is
from tax. It can be said that the government develop the country with the help of the money,
which they get from the taxpayers. There is different source of tax from which the
government get the money. Each sources are being specified its individual from which the
money can be raised. The tax policy can have classified as per nature into two heads
Progressive, Regressive and each policy have their pros and cons and it is up to the
government about which policy they will use for their sources of tax.
Individual have also founded two methods from which they can avoid tax
implications. The two methods are tax avoidance and tax evasion. Tax avoidance is a legal
method, which help the individual to find the loopholes in the tax structure and with help of it
can avoid tax implications. In tax evasion, an individual does unfair means to avoid tax
implication. It can even make the individual is in legal troubles which can lead to
imprisonment or penalties or even both.

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References
Alstadsæter, A., Johannesen, N. and Zucman, G., 2018. Tax Evasion and Tax Avoidance.
Working Paper.
Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate
governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1),
pp.1-17.
Bogenschneider, B., 2015. Critical Legal Studies and Regressive Taxation in the United
States.
Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Chiroleu-Assouline, M. and Fodha, M., 2014. From regressive pollution taxes to progressive
environmental tax reforms. European Economic Review, 69, pp.126-142.
Davis, A., Hirsch, D. and Padley, M., 2014. A Minimum Income Standard for the UK in 2014.
Joseph Rowntree Foundation© Loughborough University.
Devereux, M.P., Liu, L. and Loretz, S., 2014. The elasticity of corporate taxable income:
New evidence from UK tax records. American Economic Journal: Economic Policy, 6(2),
pp.19-53.
Doerrenberg, P. and Peichl, A., 2013. Progressive taxation and tax morale. Public
Choice, 155(3-4), pp.293-316.

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Heald, D., Geaughan, N. and Colin, R., 2013. Financial arrangements for UK devolution.
In Remaking the Union (pp. 29-58). Routledge.
Hope, O.K., Ma, M.S. and Thomas, W.B., 2013. Tax avoidance and geographic earnings
disclosure. Journal of Accounting and Economics, 56(2-3), pp.170-189.
Liu, L. and Lockwood, B., 2016. VAT notches, voluntary registration and bunching: Theory
and UK evidence.
Parker, H., 2018. Instead of the Dole: an enquiry into integration of the tax and benefit
systems. Routledge.
Piketty, T., Saez, E. and Zucman, G., 2017. Distributional national accounts: methods and
estimates for the United States. The Quarterly Journal of Economics, 133(2), pp.553-609.
Pope, T. and Waters, T., 2014. A survey of the UK tax system.
Ward, M. and Rhodes, C., 2014. Small businesses and the UK economy. Report, House.