Taxation in Britain - Essay Example

TAXATION By of the of the School The late 17th century saw an introductionof a land tax that was uniform to everybody. It practically formed the main source of revenue for the government particularly throughout the remaining part of the 17th century, the whole of 18th century and for the early part of the 19th century (James, 2009, pg. 24). In December 1798, William Pitt the Younger in his budget, announced income tax in Britain for the first time and it was introduced fully by 1799. This tax was to enable them pay for the equipment and weapons which was to enable them prepare for the Napoleonic Wars. This new progressive income tax introduced by Pitt saw the people remitting a levy of 2 old pence for every pound on incomes that were more than £60 (this minimum amount was reviewed in 2014 and fixed at £5348). The levy actually increased up to a maximum amount of 2 shillings (10 percent) particularly on incomes more than £200. Pitt had projected a total receipt of £10 million from the new tax but in actual sense it raised just over £6 million in 1799 (James, 2009, pg. 30). This income tax introduced by Pitt was actually levied under five schedules and those incomes that were not falling within these schedules were not taxed. The schedules were (James, 2009, pg. 31). i) Schedule A-this included tax on income originating from the UK land ii) Schedule B-this was tax on the commercial land occupation iii) Schedule C-this was tax on the income from the public securities iv) Schedule D-comprises tax on the trading income, interest, casual income, overseas income and income from vocations and professions v) Schedule E- tax on the employment income Schedule F was introduced as a result of a sixth Schedule which comprised tax on dividend income from the United Kingdom dividend income. This income tax introduced by Pitt was levied between 1799 and 1802 and was abolished by Henry Addington basically during the peace of Amiens. Addington had actually taken over as prime Minister following the resignation of Pitt in 1801 as a result of Catholic Emancipation. Recommence of the hostilities in 1803 saw the reintroduction of income tax by Addington; however, it was re-abolished in 1816 a year after the Waterloo Battle. Income Tax Act 1842 by Sir Robert Peel again saw the reintroduction of the income tax in the United Kingdom due to the growing deficit in the budget. This new income was only levied on incomes above £150 which in 2014 was fixed at £11,956 (James, 2009, pg. 41). Income tax in the UK has practically changed over the years. Firstly it was levied on a person’s income even though the persons were not beneficially entitled to the income which was taxed however; at the moment a person pays tax only on the income to which they are beneficially entitled. In 1965, an introduction of corporation tax took out most companies from the then income tax net. Income and Corporation Taxes Act 1970 consolidated the changes in the taxation. Further, there were changes in the taxation schedules. For instance, in 1988, Schedule B was abolished, in 1996, Schedule C was abolished and in 2003, schedule E was also abolished. The remaining Schedules were then superseded by an act introduced in 2005(Income Tax (Trading and other Income) Act 2005 particularly for the income tax purposes. This act completely repealed Schedule F. Further; Corporation Tax Act 2009 and the Corporation Tax Act 2010 repealed and superseded the Schedular system particularly for the purposes of the corporation tax. Second World War saw the highest peak of income tax which was at 99.25 percent however, this rate slightly decreased to about 90 percent after the war through the 1950s and the 1960s. Throughout the years, there has been a reduction in the income tax top rate; in 1975 it was reduced to 75 percent from the 90%. In 1974 it was raised to 83 percent, however, in 1979 it was decreased to 60 percent by Margaret Thatcher in her first budget. She also reduced the basic rate to 30 percent from 33 percent. In 1986, the basic rate was reduced to 29 percent, in 1987 to 27 percent and then to 25 percent in 1988. In 1988 budget, the top rate was further reduced to 40 percent. The basic rate was further cut by the subsequent governments to its current level of 20 percent. This considerable reduction has been subsequently offset by the substantial increases in the value added tax and national insurance contributions. There was an introduction of a 50 percent top rate in 2010 for incomes more than £150,000, however, this rate was decreased to 45 percent in the 2012 budget (James, 2009, pg. 120). The UK tax system requires that any legible person to comply with the tax requirements and those who fail to comply 2. Roles and responsibilities of a tax practitioner Tax practitioner performs the following roles and responsibilities (Dennis-Escoffier & Fortin, 2008, pg. 97-114) i) They prepare all the financial information, provide the required documents and prepare all exercise and sales tax returns. They further ensure that all Form 1099 is complied with and further help in designing all projections for the tax credits (James, 2009, pg. 124). ii) They ensure that all tax general ledger accounts are maintained and reconciled. They then evaluate all the account balances and then prepare all the schedules and tax returns for the same. They further ensure that regular audits are performed on all the tax returns. iii) They ensure that all accounting information is analyzed and the required paper work is prepared. iv) They maintain all tax and accounting information. v) They ensure that all work papers are analyzed for accuracy purposes and compliance with all the regulations. vi) They ensure that all monthly activities are administered and fully complied with. They prepare the tax returns that are required, ensure that multi state laws are researched and maintained and also performs local and state tax audit. vii) They respond to portfolio investment and acquisition of property tax related issues. viii) They prepare all federal and state income tax returns. ix) They help in calculating all filings and payments and also assist in making all tax payments. They also ensure that all timeframe is complied with. Perform research so as to resolve all tax inquiries and subsequently provide appropriate solutions to the issues and finally document all tax and federal tax returns. x) They ensure that client confidentiality that relates to the matters of tax is maintained. They ensure that tax professional ethics and standards are fully adhered to in their conduct. xi) They respond to all queries that are associated with the submission of tax and also ensure that all payments and extensions are complied with. From the above it is evident that the tax practitioner performs a main function of tax advice provision, tax returns preparation for their clients. 3. Other than active honestly particularly when dealing with issues related to tax, tax payers have the following obligations to fulfill: i) They should be able to correctly determine the tax amount that they should pay particularly under the tax laws unless they are not filing taxpayers ii) They should be able to make an assessment if the law requires iii) They should be able to remit or pay their tax amount on time iv) They should withhold or deduct the correct tax amount from their receipts or payments in case the law requires v) The law requires them to keep all the necessary information, for instance, records and books. They should also maintain all the necessary balances and accounts that the law may demand. vi) They should disclose all the information required by the tax laws on timely basis to the Commissioner. The information includes records and books. vii) The tax laws require them to fully cooperate with the Commissioner particularly in ways that may assist the Commissioner to exercise their powers. viii) They should also be able to comply with other obligations that are imposed on them by the tax laws ix) If the tax payer is a natural person, the tax laws requires that they respond correctly to any income statement that is issued to them Tax payers who fail to comply with these obligations may be charged penalties that are percentage based or fixed income based. In case of corporate, directors are made personally liable for the tax payable of they companies. Further, the companies are placed on liquidation in case they fail to pay their taxes. 4. Calculation of profit or loss made on property. Rent income (515*12) 6180 Allowable expenses Cost of redecoration 1000 Council tax 2150 Water rates 600 Wear and tear allowance 403 1st January 2013 insurance premium 1800 1st January 2014 insurance premium 2200 8153 Loss 1973 Wear and tear allowance= (rent income –Council tax) 10% = (6180-600)*10%= £403 5. Tax returns compilation Total rent income 19600 Allowable expenses Repairs (3800) Council tax (4280) Mortgage fees (1568) Wear and tear allowance (1532) Taxable amount 8420 Tax liability (20% of 8420) 1684 Tax return form extracts Box 1- £19,600 Box 2- 1684 6. Total income calculation Earned income 40300 Interest received 1480 Dividend income 774 Total income 42554 References Dennis-Escoffier, S., & Fortin, K. (2008). Taxation for decision makers. Mason, OH, Thomson South-Western. Dubin, J. A. (2012). The causes and consequences of income tax noncompliance. New York, Springer Science+Business Media, LLC. James, M. (2009). The UK tax system: an introduction. London, Spiramus. Mo, P. L. L. (2003). Tax avoidance and anti-avoidance measures in major developing economies. Westport, Conn, Praeger. Pg 171 (2007). Income Tax Act 2007: Explanatory notes. [London], TSO. Pg 51 (2011). Cambridge business English dictionary. Cambridge, Cambridge University Press. Pg 847 Read More