UK Tax System Report

This report provides a comprehensive overview of the UK tax system. It begins with a brief history of taxation in the UK, highlighting the introduction and evolution of income tax and corporation tax. The report then delves into the specifics of the current tax system, outlining the elements included in the Statement of Income Tax Liabilities for individuals (SA100) and corporations (CT600). Tax rates for both individuals and corporations are detailed, along with explanations of relevant allowances and reliefs. The report also discusses the rationale behind preparing income tax statements, emphasizing their importance for government record-keeping, legal recognition of transactions, and contribution to national income. Finally, the report explores the broader economic impact of taxation, examining its influence on capital formation, employment generation, price stability, and income inequality. The report concludes by emphasizing the importance of tax compliance and its contribution to national development.

Running Head: UK TAX SYSTEM 1
Title
Assignment: UK TAX SYSTEM
1 | P a g e

UK TAX SYSTEM 2
 Brief History on UK Tax System
Before starting the discussion about the history of the UK taxation we can define taxes as a
compulsory charge, levied by the government, on income or expenditure.
First tax in British history which was levied directly on people's earnings was the Income
Tax. It was firstly imposed in 1798 by the Prime Minister William Pitt the Younger, At
that time Income tax was levied for small period mainly to cover the cost of the Napoleonic
Wars & abolished in 1802.
Again, the income tax was reintroduced by Addington in 1803 but abolished in 1816.One
more time again it was reintroduced in 1842 by Sir Robert Peel (Freedman and Vella, 2017)
& still is in existence as of now.
Corporation tax, Finance Act 1965 make significant change in tax structure for companies
and associations with a single corporate tax, Although basic tax structure and rules are same
as in earlier the income tax system. Introduction of corporation tax & above changes were
consolidated by the Income and Corporation Taxes Act 1970 with the schedules under which
tax is levied have changed.
The tax year in UK Tax System is from 6 April to 5 April of next year. 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 Gainf) Income
Earned as trustee g) Foreign Income h) Interest & dividends from Banks i)UK Pensions,
annuities and other state benefits receivedj) Tax Reliefs k) Charitable giving l) Information
about Student loan repayments (Gov.uk., 2017b).
***Other Important Points
2 | P a g e

UK TAX SYSTEM 3
1. On the income of £123,000 or above Personal Allowance will be Nil & the same reduce
by £1 for every £2 when your adjusted net income is above £100,000.
2. There is no tax on saving Interest & Dividend Income.
Income Tax Rates for 2017-18
Taxable income
Tax
rate
0£- £11,500 0%
£11,501- £45,000 20%
£45,001 - £150,000 40%
over £150,000 45%
 Statement of Income Tax liabilities for Corporations (CT600)
Companies registered in UK are taxable on their income earned within UK and also from
outside the UK. Non- resident UK companies are liable to corporate tax only on the trading
profits attributable to a UK.
A. Income Tax Rate for Corporation
Basic rate of corporation tax is 19% for the year beginning 1 Apr 2017.
For Companies taxable profits mainly include the money a earn from:
 Business called operating profits
 Investments
 And from the sale of assets
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
For the assets that you used in business capital allowances can be claimed like for Plant &
machinery business vehicles.
3 | P a g e

UK TAX SYSTEM 4
C. Marginal Relief
Marginal Relief can be claimed if your company had profits in range of £300,000 and £1.5
million.
D. Other Important Points
a) For companies it is mandatory to file the Income tax statement even if company make a
loss or have no Corporation Tax to pay.
b) Timeline for filling the Statement of Income tax return is 12 months after the end of
the accounting period for the relevant accounting year.
 Rationale Behind Preparing Statements of Income Tax liabilities
Government keeps records for every citizen relating to sources of income & means of
income & citizens claim refund & other forms of relief as applicable from time to time &
which is done only through the income tax statements. Submission of the income tax
Statements is an annual & mandatory activity and also and social duty of every citizen of the
country.
All the Transactions for which information is filled with Income tax department through
income tax statements got legal recognized because government is collecting the tax on it.
By payment of taxes every citizen get participation in the contribution towards national
income & GDP growth.
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
 If two companies are associated with another if either:
 If One of the company controls the other
 If two companies are controlled by the same other companies or people
4 | P a g e

UK TAX SYSTEM 5
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
Basic Purpose of collecting the taxes: To meet huge public expenditure is the primary
purpose of raising the revenue from taxes. Most essentials requirement are fulfilled through
the tax revenue. But this is not only purpose taxation policy also has some non-monetary
objectives.
Presently, parameter to measure the economy policy is nothing but taxation as whole
economy revolves arrounds the total volume of production, consumption, investment, choice
of industrial location and techniques, balance of payments, distribution of income, & all
these the based on taxation which is explained below that how the development of a country
is impacted by taxes :
1. Impact on Economic Development: By plumping more into existing taxes and
by introucing new taxes, the process of capital formation can be made easier. If
the government of any country wants to make change in saving-income ratio that
can be effectively change through taxation policy which is very important element
for the economic development.
2. Generation of Employment: Employment index depends on effective demand &
again the demand can be manipulated by change in tax rate. Demand is directly
proportional to investment which will ultimately effect to a rise in income and
employment through the multiplier mechanism.
3. Effect on Price Stability: Hike in the rate of direct taxes can control the personal
expenses.Finally, another extra-revenue or non-revenue objective of taxation is
the reduction of inequalities in income and wealth.
5 | P a g e

UK TAX SYSTEM 6
References:
Freedman, J. and Vella, J. (2017). HMRC’S MANAGEMENT OF THE UK TAX SYSTEM: THE
BOUNDARIES OF LEGITIMATE DISCRETION. [online] Available at:
https://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/Publications/
Working_Papers/Series_10/WP1022.pdf [Accessed 30 Sep. 2017].
Gov.uk. (2017a). Corporation Tax rates and reliefs - GOV.UK. [online] Available at:
https://www.gov.uk/corporation-tax-rates [Accessed 30 Sep. 2017].
Gov.uk. (2017b). Income Tax rates and Personal Allowances - GOV.UK. [online] Available at:
https://www.gov.uk/income-tax-rates/current-rates-and-allowances [Accessed 30 Sep. 2017].
SimpleTax. (2017). What is an SA100 form?. [online] Available at:
https://www.gosimpletax.com/what-is-an-sa100-form [Accessed 30 Sep. 2017].
Wallace, P. (2017). A short history of income tax. [online] The Independent. Available at:
http://www.independent.co.uk/news/uk/a-short-history-of-income-tax-1577708.html [Accessed
30 Sep. 2017].
6 | P a g e