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The Role of Direct and Indirect Taxes in the Federal Reserve - Essay Example

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The Role of Direct and Indirect Taxes in the Federal Reserve

i. Present in the UK for a minimum of 183 days ii. Not habitually in the UK but makes substantial visits averaging a minimum of 91 days a year in each of four or more consecutive years. For anyone who may be emigrating from the UK, the number of years is three instead of four. However, if there are extenuating circumstances such as illnesses the days are ignored for the 91 day rule but not for the 183 day rule. Ordinary residence indicates a higher degree of permanence when compared to residence. An individual is considered to be ordinarily resident if residence in the UK is of a habitual nature. Therefore, if that person goes abroad for a period constituting a full tax year the individual is regarded as remaining a resident and ordinarily resident during the period of absence. What is taxable? A UK resident is normally liable for taxation on income earned both in the UK and overseas. A non-resident however is only liable to pay UK income tax on income earned in the UK (BPP Learning Media 2009). Income from several sources is brought together in an individual’s personal tax computation. These sources include: non-saving - income from employment; saving income - building society interest and national saving and investment interest; and dividend income - income received for investment in company shares. Interest paid and income tax allowances - personal, married couple, blind person and other allowances which are determined by the government are deducted from non-saving income. Table 1shows information on various personal and other allowances and related income limits for the year 2010/11. Table 1 - Income Tax Allowances 2010/11 Personal Allowance ?6,475 Income limit for personal allowance ?100,000 Personal allowance for people aged 65-74 ?9,490 Personal Allowance for people aged 75 and over ?9,640 Married Couple’s Allowance (born before 6th April 1935 and aged 75 and over ?6,965 Income limit for age-related allowances ?22,900 The personal allowance of ?6,475 is reduced by ?1 for every ?2 of income above the ?100,000. The minimum amount for married couples allowance is ?2,670. The relevant tax period The relevant tax period for income tax in the UK runs from 6th April to 5th April. Therefore, the 2010/2011 financial year it runs from 6th April 2010 to 5th April 2011. Tax bands The income tax system in the UK is progressive. It is expected that by doing so individuals earning high income and businesses earning high profits will pay higher levels of taxation. The details are shown in Table 2. Table 2 - UK Tax Bands Particulars Rate Income tax band (?) Comments Starting rate for savings 10% 0 – 2,440 The starting rate of 10% applies only to savings income. The 10% starting rate does not apply Basic rate 20% 0 – 37,400 Higher rate 40% 37,401 – 150,000 Additional rate 50% Over 150,000 Savings income is taxed at 10% for an income range of ?0-?2,440. However, if non-savings income is above that limit then the 10% starting rate for savings income does not apply. Dividend income is taxed at 10% for those paying tax in the basic rate band, 32.5 for those taxed in the medium rate band and a new additional rate of 42.5% was introduced in 2010/2011 for those individuals who are earning income in excess of ?150,000 (tax rates.cc n.d). Corporation tax Scope Corporation tax is payable by companies (BPP Learning Media 2009). A company is any corporate body whether limited or unlimited or an ...Show more

Summary

Instructor Date UK Taxation System Part 1 Income tax Scope Income tax in the UK relates to tax charged on individuals and partnerships. An individual’s liability to UK income tax is determined by whether the individual is resident or ordinarily resident in the UK…
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The Role of Direct and Indirect Taxes in the Federal Reserve essay example
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