UK Tax System.
The taxation structure which any country imposes has a direct impact on its accumulation and redistribution of wealth within its economy. The UK tax system is administered by Her Majesty Revenue and Custom (HMRC) and comprises of a number of taxes. Tax is collected directly or indirectly. Direct taxation is based on income and profits made by an individual. With the direct taxation, the taxpayer pays his tax directly to the government. Examples of direct taxes include income tax, corporation tax and capital gains tax. With indirect taxation, indirect taxes is collected from the taxpayer through intermediaries, say from an employer, the intermediary collects the tax and pays it over to the government. (Paper F6 – Taxation. Complete Text). A common example is the VAT where a consumer pays over VAT to the supplier who then pays it over to the government. The UK tax system comprises of the following:
Income Tax: This is tax payable by individuals who are employed or self employed.
Capital Gains Tax: It is tax payable by individuals on the disposal of capital assets such as buildings, paintings, antiques.
Corporation Tax: Tax payable by all companies on their income and gains.
Value Added Tax (VAT): This is tax which consumers pay on certain goods and services excluding food which is passed on from supplier to the government.
National Insurance Contributions (NIC): These contributions are paid by individuals who are employed or self employed and by companies and sole traders for their employees. (Melville,2007)
Roles and Responsibilities of the Tax advisor.
The role of the tax advisor is to provide advice and assistance in simple terms to its clients in preparing and submitting returns to the Inland Revenue. A tax advisor must also communicate this information clearly and in a simple manner as possible, the purpose and obligation of the filing and payment of various taxes it must pay and the implications that might accrue if these are not met. He has the duty of acting honestly and diligently when carrying out his duties, (Melville, 2007).
Methods of Tax Collection.
Tax can be collected through the PAYE and Payment on accounts system. The PAYE known as Pay As You Earn is a system of tax collection whereby an employee’s income tax liability is deducted from his salary at source and paid by his employer to the HMRC. (Paper F6 – Taxation. Complete Text)The tax collected is deducted using a code which all employees possess in order to satisfy that the right income of tax is deducted at source from the employees pay. The code number is made up of allowances and deductions which an individual is entitled to. PAYE is payable to HMRC on the 19th of every month. (hmrc.gov.uk). Companies whose number of employees exceeds 250 must make their payments electronically and must be made on the 22nd of each month. The Payment on Accounts refers are required from any individuals who was assessed on income tax in the previous year. This is relevant even where the tax assessment has not been made at the time of payments (hmrc.gov.uk)
Income Tax Computation for Jane Simmons for the year ended 2007/2008
Other Income Savings Dividend Total
£ £ £ £
Employment Income 26,500 26,500
Dividend Income (2700 x 100/90) 3,000 3,000
Savings Income (2760 x 100/80) 3,450 3,450
Car Benefit (18,500 x 27%) 4,995 4,995
Fuel Benefit (14,400 x 27%)...