Comprehensive Study: The UK Tax System's History and Impact

This report provides a comprehensive overview of the UK tax system, beginning with a brief history of its evolution, from the introduction of income tax in 1798 to the current structure. It defines taxes and explains the key aspects of income tax and corporation tax, including tax rates, allowances, and reliefs. The report details the elements included in the Statements of Income Tax Liabilities (SA 100 for individuals and CT600 for corporations). It explores the rationale behind preparing these statements, emphasizing their role in governmental revenue and economic management. Furthermore, it discusses the impact of taxation on economic development, full employment, and price stability, concluding with the consequences of not imposing taxes. The report references key sources like Gov.uk and other academic journals.

Running Head: UK TAX SYSTEM 1
Title
Assignment: UK TAX SYSTEM
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 Brief History on UK Tax System
Before we discuss the historical background of the UK taxation we can define taxes as a
compulsory levy, enforced by the government, on income or expenditure.
Income Tax was the first tax in British history to be levied directly on people's earnings. It
was introduced in 1798 by the then Prime Minister William Pitt the Younger, as a
temporary measure to cover the cost of the Napoleonic Wars. Pitt's income tax was levied
from 1799 to 1802, the income tax was reintroduced by Addington in 1803 but abolished in
1816 & again But it was reintroduced in 1842 by Sir Robert Peel (Freedman and Vella,
2017).
Corporation tax, Finance Act 1965 replaced this structure for companies and associations
with a single corporate tax, which took its basic structure and rules from the income tax
system. These changes were consolidated by the Income and Corporation Taxes Act 1970.
Also the schedules under which tax is levied have changed (Gov.uk., 2017a).
The tax year commences on 6 April and ends on the following 5 April in the United
Kingdom. Statement of Income Tax liabilities that is filed with the HM Revenue &
Customs declaring liability for taxation. SA 100 is for individuals paying Income Tax &
CT600 for corporation (SimpleTax, 2017).
 Element in Statement of Income Tax Liabilities For Individuals (SA 100)
Personal Details b) Income earned in Employment c) Income Earned from Self Employed
Business d) Income Earned as partner in Partnership Business e) Capital Gain f) Income
Earned as trustee g) Foreign Income h) Interest and dividends from UK Banks, Building
societies i) UK Pensions, annuities and other state benefits received j) Tax Reliefs k)
Charitable giving l) Information about Student loan repayments (Gov.uk., 2017b).
***Other Important Points
1. Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is
above £100,000. This means your allowance is zero if your income is £123,000 or above.
2. There is no tax on saving Interest & Dividend Income.
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UK TAX SYSTEM 3
Income Tax Rates for 2017-18
 Statement of
Income Tax liabilities for Corporations (CT600)
Resident Companies are taxable in UK on their worldwide profits, while non- resident UK
companies are subject to corporate tax only on the trading profits attributable to a UK PE
plus UK Income Tax.
A. Income Tax Rate for Corporation
The normal rate of corporation tax is 19% for the year beginning 1 Apr 2017.
Taxable profits for Corporation Tax include the money your company or association makes
from:
 Trading profits
 Investments
 Selling assets for more than they cost
Some expenses aren’t allowed for Corporation Tax, for example entertaining clients - add
these back to your profits when you prepare your Company Tax Return
B. Capital allowances
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 Band  Taxable
income
 Tax
rate
 Personal
Allowance
 Up to
£11,500
 0%
 Basic rate  £11,501to
£45,000
 20
%
 Higher rate  £45,001to
£150,000
 40
%
 Additional rate  over
£150,000
 45
%

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Claim capital allowances if you buy assets that you keep to use in your business, for
example- equipment, machinery business vehicles, for example cars, vans, lorries.
C. Other reliefs
You may be able to make a claim for:
a) Research and Development (R&D) Relief
b) The Patent Box if your company makes a profit from patented inventions
c) Reliefs for creative industries (CITR) if your company makes a profit from theatre,
film, television, animation or video games
D. Marginal Relief
You can only claim Marginal Relief if your company had profits between £300,000 and £1.5
million.
E. Other Important Points
a) You must still send a return if you make a loss or have no Corporation Tax to pay.\
b) The deadline for your tax return is 12 months after the end of the accounting period it
covers.
 Rationale Behind Preparing Statements of Income Tax liabilities
Preparation & filling the income tax Statements is an annual activity seen as a moral and
social duty of every responsible citizen of the country. It is the basis for the government to
determine the amount and means of expenditure of the citizens and provides a platform for
the assesse to claim refund, among other forms of relief from time to time.
Any Transaction can be legally entered into because the government is having records of
income and it is collecting the tax on it. Payment of taxes helps every citizen to participate in
the contribution towards national income and consequently in the appraisal of the national
economy (Wallace, 2017 ).
Preparation of statement of income tax liabilities for the group companies is also an
important aspect in corporation tax.
A company is called group company or associated company if
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 One company is associated with another if either:
 One company controls the other
 Both companies are controlled by the same companies or people
Statement of income tax for group companies allows investors, financial analysts, business
owners and other interested parties to get a complete overview of the parent company. At a
glance, they can view the overall health of the business and how each subsidiary impacts the
parent company.
 Impact on a Country if does not impose taxes
The primary purpose of taxation is to raise revenue to meet huge public expenditure. Most
governmental activities must be financed by taxation. But it is not the only goal. In other
words, taxation policy has some non-revenue objectives. In the modern world, taxation is
used as an instrument of economic policy. It affects the total volume of production,
consumption, investment, choice of industrial location and techniques, balance of payments,
distribution of income, etc. Taxes impact the development of a country for the following
main factors
1. Economic Development: By raising the existing rate of taxes or by imposing new
taxes, the process of capital formation can be made smooth. One of the important
elements of economic development is the raising of savings- income ratio which
can be effectively raised through taxation policy.
2. Full Employment: Since the level of employment depends on effective demand,
a country desirous of achieving the goal of full employment must cut down the
rate of taxes. Consequently, disposable income will rise and, hence, demand for
goods and services will rise. Increased demand will stimulate investment leading
to a rise in income and employment through the multiplier mechanism.
3. Price Stability: By raising the rate of direct taxes, private spending can be
controlled. Naturally, the pressure on the commodity market is reduced. But
indirect taxes imposed on commodities fuel inflationary tendencies. Finally,
another extra-revenue or non-revenue objective of taxation is the reduction of
inequalities in income and wealth.
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