Question

Discuss the sources of tax law in the UK, considering that the basic rules of the UK tax system have been established from several sources.

Answer 1

Introduction to UK Tax Law

The UK tax system applies throughout the UK – England, Scotland (though there are some specific differences owing to Scotland’s unique legal system), Wales, Northern Ireland and many of the smaller islands around the British coast. It includes oil drilling platforms in British territorial waters, though, notably, it excludes the Channel Islands, the Isle of Man and the Republic of Ireland.

The Three Types of Taxes

Proportional tax:-This imposes the same percentage of taxation on everyone, regardless of income.

The progressive tax:-This imposes a higher percentage rate of taxation on those with higher incomes. Progressive taxes use a marginal tax rate that increases as the amount of taxable income increases.

The Regressive tax:-This is one which imposes a higher percentage rate of taxation on low incomes than on high incomes. For example, if the state sales tax were 5%, the person with the lower income would pay a greater percentage of their total income in sales tax.

Main types of tax in the UK

1. Income tax:–This a tax on people’s income. The basic rate of income tax is 20%, paid on income over the income tax threshold as decided by the government (HMRC).
2. National insurance contributions:-Another type of income tax is national insurance contributions, which are based on a similar principle of taking a certain percentage of income.
3. Consumption tax:–VAT – 17.5%
4. Excise duties on alcohol, tobacco
5. Corporation tax:–Tax on company profit
6. Stamp duty:–Tax on buying houses/shares.

Sources of UK tax law

There is no single source of UK tax law. The basic rules are laid down in Acts of Parliament but it is left to the courts to interpret these Acts and to provide much of the detail of the tax system.

In addition, HMRC issues a variety of statements, notices and leaflets which explain how the law is implemented in practice. These statements explain the tax authority`s interpretation of the law and will be adhered to unless successfully challenged in the courts.

The tax year in UK Tax Law

The changes to the tax system that are proposed in the annual Budget speech in March are generally intended to take effect as from the start of the next tax year.

For individuals, a tax year, which is also known as a fiscal year or year of assessment, runs from 6 April to the following 5 April inclusive. For instance, tax year 2017-18 will begin on 6 April 2017 and ended on 5 April 2018.

However, the tax year for companies is slightly different from the fiscal year. A corporation tax financial year runs from 1 April to the following 31 March and is identified by the year in which it begins. For instance, the financial year known as FY 2017 will begin on 1 April 2017 and end on 31 March 2018.

Record keeping under UK Tax Laws

Taxpayers are required to keep proper records so that they can make a correct tax return and (if necessary) substantiate the figures entered on the return. A taxpayer who is in business or who lets property must normally preserve these records for five years after the 31 January which follows the end of the tax year concerned. Otherwise, records must be preserved for 12 months after the 31 January which follows the end of the tax year. For example, records for tax year 2010-11 must normally be retained until 31 January 2017 by a taxpayer who is in business or who lets property and until 31 January 2013 otherwise.

Tax evasion under UK tax Law

Taxpayers are required to provide information which is correct and complete. Dishonest behavior (such as concealing a source of income) is known as tax evasion and is against the law.

On summary conviction in a magistrate's court, offenders may be sentenced to up to six months in prison and may be fined up to £5,000 (the "statutory maximum").

On indictment in a higher court, the penalties are increased to a maximum of seven years in prison and/or an unlimited fine.

Appeals under UK Tax Laws

Taxpayers have the right of appeal against certain HMRC (Her Majesty`s Revenue and Customs) decisions. Appeals which cannot be settled by agreement between the taxpayer and HMRC are dealt with by a two-tier tribunals system.