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UK personal tax research
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| Words: 5786 | Submitted: 05-Apr-2011
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DescriptionUK personal tax research
With the changing of economic climate in the UK, the government needs a desirable tax system, which can deal with complex taxation problems correctly. This report aims to explain four desirable characteristics of a taxation system outlined by Adam Smith and other writers subsequently added further characteristics which are the common viewpoints, meanwhile, evaluate some practical application in the current UK’s income tax systems which are implemented by guidance of those desirable characteristics better or not.
Key words: desirable characteristics, taxation system, UK income tax system
1. Introduction 3
2.1 The desirable charactersitics of a tax system by Adam Smith 3
2.1.1Adam Smith’s four desirable characteristics 3
2.1.2 Equity 4
2.1.3 Certainty 6
2.1.4 Convenience 6
2.1.5 Efficiency 6
2.2Other characteristics 7
2.2.1 Simplicity 7
3. Income tax in UK 8
4. Progressive income tax in UK 8
5. Practical applications in the current UK income tax system 9
5.1 HM Revenue and Customs 10
5.2 The Self assessment system 10
5.4 Penalties 13
5.5 Income tax categories and schedules 14
5.6 Disputing tax liabilities 15
5.7 Office of Tax Simplification (OTS) 15
5.8 Compliance check 16
5.9 Older people 16
5.10 Child benefit 17
6. Conclusion 17
7 Reference List: 18
8. Appendix 20
UK government regards taxation is a tool to pay for the country’s basic functions. In particular, income tax is the important component of the whole taxation system. Jones (2005) has provided “Income tax is the single largest earner for the government making up 30% of total revenue.” For this reason, the UK government needs to improve drawbacks and strengthen desirable characteristics in the income tax system. This report is split into two parts, part A (2) will introduce the desirable characteristics of tax system and part B (3-5) will evaluate current UK income tax system.
2. The desirable characteristics of a tax system by Adam Smith
Adam Smith outlined four desirable characteristics of how to design an ideal tax system in his book, The Wealth of Nations, published in 1776. In the following years, people added other principles to complete tax system.
2.1.1 Adam Smith’s four desirable characteristics
Smith’s 1776 study (cited in Lymer and Oats 2010, p.44) shows that:
(1) “The subjects of every state ought to contribute to the support of the government, in proportion of their respective abilities; that is in proportion to the revenue which they respectively enjoy under the protection of the state.”
(2) “The tax which each individual is bound to pay ought to be certain, and not arbitrary.”
(3) “Every tax ought to be levied at the time, or in the manner, most convenient for the contributor to pay it.”
(4) “Every tax ought to be so contrived as both to take out, and keep out, of the pockets of the people, as little as possible over and above what it brings in to the public treasury ...
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