Critical analysis of the uk tax system

1756 word (7 pages) essay in Economics

5/12/16 Economics Reference this

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John S. Caldwell said “The point to remember is what government gives it must first take away1.” Taxes transfer spending power from the taxpayer to the government. Taxation exceeds the totals that can be increased by resorting to the printing press, charging consumers directly, or borrowing. The government gathers money to give on public services, such as education, health and the social security system by tax.

The main UK taxes are presented and categorized and the principal sources of tax law are explained. It is consisted of a number of different taxes, some of which are direct taxes and other is indirect taxes. The fundamental rules of sources of tax law are laid down in Acts of Parliament. In modern Britain taxation has become completely embedded in the society. Without taxation the country would cease to operate.

Over the years the UK taxation system has become extremely complicated. This has developed a system which is strangled by red tape and can be very confusing for both personal taxation and business taxation.

The coalition government has planned a number of very good received ideas with regards to the UK taxation system although as yet no final decisions have been made. Any move to intelligible the current taxation system should help with investment, both internally and externally, in the UK to hopefully create a good situation for all involved.

UK tax law must accede with the regulations and directives of the European Union. EU member’s states must provide members of other EU states freedom of establishment and not tax them at higher rates than their own nationals. In additionally, UK tax law must be agreeable with the European Convention on Human Rights and the Human Rights Act 1998.

The UK government repair the UK taxation system in a move which will be welcomed by the British residents and businesses. As a whole, the UK has a low-tax, low-allowance system of taxation. For this reason, it estimated the most perfect tax system that could be conceived. Besides, I will analyze this perception with the following basic information.

1 taken by:

The income tax system of the United Kingdom has cultivated over many years during which it has been clarified and outlined by amending legislation and by case law. If you live in the UK, you will have to pay income tax for your wages, if you are employed, the profits from your business if you’re self-employed, jobseeker’s allowance, retirement pensions, income from property, building and bank society interest and dividends on shares. Likewise, there are some exceptions for individuals like ambassadors and their foreign staff, members of visiting armed forces and officials of the United Nations.

This tax is collected by the government department known as HM Revenue & Customs. The personal income tax is lower in UK than many countries. It is based on individual rather than family income and only about 10% of taxpayers have been needed to file returns in recent years. The UK income tax highlights simplicity, downplays the main role of public policy and limits attempts to achieve finely tuned measures of income. When working in the UK, you can usually select between a numbers of different ways to receive your pay. Under the UK PAYE (pay-as-you-earn) taxation scheme, tax will be abstracted from your pay by your employer before you receive it. Your PAYE UK deductions will be a combination of your income tax and National Insurance (NI) contributions.

National Insurance is a necessary deduction of a fixed percentage of your earnings that admits you to have admission to benefits and services such as the National Health Service (NHS).As an employer you pay National Insurance contributions (NICs) on the earnings you supply to your employees. Earnings consist of not only cash amounts but advantages, such as providing your employees with company cars. Employed and self-employed pay NICs on their earnings too. Some contributions go towards building up workers’ entitlements to public security benefits such as Jobseeker’s Allowance and the State Pension.

In European legislation, value added tax (VAT) is now firmly demonstrated as one of the most important forms of taxation in Britain. The target of this is to compose an accepted system of taxation that does not impede intra European Union business transaction. Britain’s legislation applies a “taxable person” is an individual, partnership or company who is, or is needed to be, registered for VAT. The UK VAT legislation includes all forms of business supply made in return for consideration.

VAT has an important and often definite force on the economics of property development and construction. Not all purchases have VAT applied, for instance children’s clothes and shoes are usually exempt from VAT as is most food which we purchase from a store. The VAT decline helps the community save money as retailers and providers have decrease their prices. Although, there is an excise tax which HMRC charges on some goods that are acquired, imported or produced in the UK. It is charged on alcohol, hydrocarbon oils (including fuel and petrol), cigarettes and tobacco. Increasing prices and grander taxes leads to a sharp rise in total communication tax revenue. Except of this, is this really an advantage especially as most of our day to day living purchases are actually food on which VAT is not always applied? To the best of my knowledge, i strongly believe that the increase tax on the cigarettes motivate people to quit smoking for the best of their health. Alternatively, merchants afraid of the cost increase because it will push more smokers onto the black market in tobacco products, which are purchased them at half the retail price. Also, the increased prices on alcohol stimulate people not get drunk so decreases the crimes in UK. On the other hand, this situation had closed many pubs. About the petrol, it is obvious that the other transportation is cheaper. You should not have to pay for petrol, parking’s etc. In addition to this, I could say that the escalator on the vat price for petrol was designed to raise money and discourage car use on environmental grounds.

Capital gains tax has two basic problems. Firstly, it is about capital gains which arise only when the price level increased. However, there are other considerations which are discussed and there is also the practical problem of selecting an appropriate index amount to take account of inflation.

The other problem is that capital gains tax should be imposed on an accrual basis. In real, this would include the valuation of capital assets every year, so deducting a considerable administrative burden. In addition, it would include the risk that individuals might be forced to liquidate assets in order to pay the tax.

In United Kingdom, capital gains tax prevents these problems because it is levied on a realisation basis. But this creates some difficulties. To start with, asset-holders may be “locked-in”, in the sense that they have an inducement to defer payment of the tax by not realising the asset. Next, it is difficult to make the tax growing because assets are realised in changeable lumps. That’s why need complex averaging provisions. This difficult is aggravated because an individual’s capital gains, whether realised or not, happen irregularly.

There is no intention in the UK tax system to subject a receipt to both income tax and capital gains tax. If a receipt is subject to income tax the no capital gains tax liability will arise. This is a common rule that exist in Britain. A liability to capital gains tax arises when a chargeable person makes a chargeable disposal of chargeable assets. Capital gains are arranged for inflation, while deductions for mortgage interest and other items are more limited than other countries.

On the other hand, nothing in life is black and white. George Osborne said Britain had “one of the most complex and opaque tax codes in the world”. Some people believe that the UK tax law needed to be simplified, to cut the burden on business and attract foreign investment. People might actually understand the tax laws which they were being asked to comply with. The tax system evolved into a “hindrance” to business under Labour, and that by simplifying it and making it more competitive for small companies it would motivate economic growth.

The common political parties are right to suggest policies to maximise revenue as part of their schemes to ease the deficit. On the other hand, their plans place too much emphasis on tax increases rather than spending declines. Certainly, their schemes would cause the highest economic injury by increasing taxes on employment and income rather than consumption, and by maximizing the burden on a small class of wealth generators rather than widening the total of taxpayers. The contemporary plans will prevent investment, employment and growth.

Alternatively, it is important to remind the electorate that expenses have to be paid for. UK political parties have given the conception that ever raising welfare advantages and social services can be made accessible to them at little or no cost. The effect is unsustainable positions of social costs.

Each of the major parties has proposed tax policy changes. Basing tax policy on principles will itself go a long way to restore businesses and investors. A new set of standards for UK tax policy will affect to raising the tax base rather than damaging raises in tax rates, income from dissimilar sources should be taxed in an similar method and tax should be connected to the individual, the tax system and tax policy method should be available from political whim and regular with principle and taxes must be required in an even handed way and individuals should offer their equal share, in all parts of the income scale.

In conclusion, it is obvious that the UK tax system is in good way and day by day evolves for the best. The Paymaster General, Dawn Primarolo, said:

“The measures announced today will ensure that the UK has a fair and competitive tax system that recognises the challenges of today’s business environment. They will advance the Government’s vision of a modern and efficient tax system that supports commercial decisions and promotes economic efficiency and productivity while keeping pace with European and international developments.”

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