Uk Taxation System

1. 1 Introduction of the UK appraiseationation scheme thither is a very long succession before British value becomes what it is now, which rout out be traced certify to Ancient times when UK was a part of the Roman Empire. The uniform land evaluate in 1692 is the cornerst unmatchable to the current British task scheme at that time, the land tax revenue enhancement is a mannikin of propose tax and is the of import source of government revenue. Before the end of 18th century in British, William Pitt proclaimed income tax to cover the expenses on weapons in the preparation for the Napoleonic Wars. Initi bothy, the tax evaluate was around 1/120 of the income above ? 60 and the rate increased to 1/10 of income above ? 200.In the 20th century, income tax is the main resource for UK government in the mean time, indirect taxes overly became more burning(prenominal) by means of the century. In 1965, the corporation tax and the capital gains tax were introduced, and in 1 984 the capital transfer tax was replaced by inheritance tax. Currently, the taxation musical arrangement in the UK thunder mug be mainly categorized as private tax, including income tax, inheritance tax and council tax, sales taxes and duties, including value added tax, excise duties, supply ship duty and motoring taxation, business and singularized taxes, including national insurance contributions and capital gains tax and business taxes.As a constitutional monarchy, the power of legislation is exceedingly concentrated. All tax polices atomic number 18 from proposals from the Treasury Department and after approved by parliament and the royal, these proposals nooky come into effect and become laws. In the UK, nearly 90% of tax income is collected by primal government. The HM Revenue & Customs takes charges of tax administration related af picturesques, including value added tax, sales revenue and tariff. 1. 2 Discussion of the UK taxation groundworks In computing the t ax, we brook to consider two parts tax home swinish and tax rate.Tax lower-ranking is the stinting basis of a certain tax and it is the base amount of money to inscribe the tax liabilities. Tax base is different from tax object, for example, the total income is the object of income tax, while only the taxable income can be regarded tax base. On the whole, tax base has two categories sparing tax base and non-economical tax base. Economical tax base means the objects of tax that atomic number 18 related to economical actions, such as revenue, capital and sales non-economical tax base has nothing to do with mints economical actions, such as the poll tax that is taxed on every mortal person without their actions.In the UK, on that testify are three kinds of tax bases income base, capital base and employment base. The income base is mainly used in individual income tax and corporate income tax. In around countries, revenue from income tax is the main source of government, so income tax base certainly has many advantages. Firstly, income tax base is much larger than other tax bases, because flock with income above taxable tot eitheryowance are the subjects to income tax. Furthermore, for most people, tax based on income is easy to take aim and manage for governmental officers. On the other hand, income tax base also has several disadvantages.Firstly, income tax base is only available for cash income for income as unplayfuls, income tax base would not work. Obviously, it is unfair to not tax on well-behaveds income. Secondly, income has many sources nigh are easy to track, such as wages and bonus, while few are not easy to detect, such as illegal sales commissions. At last, different people have different world power to profits the tax and income is not a cheeseparing indictor to measure their tax abilities. So it is very hard to realise a rule or rate to keep fair among every taxpayer. Capital can be used to make income and can reflect ind ividuals paying ability, so it seems to be a good base for tax.However, the amount of capital would not generate the same amount of income, so it is not very accurate to use capital as a tax base. Furthermore, there are many kinds of capitals, which are hard to calculate and manage, and taxpayers economic conditions are not the same, for example a house with mortgages and without mortgage should not be regarded same, so capital tax base also has more or less drawbacks. At last, habit is also a measurement of ability to pay tax more consumption means more ability to pay tax and less consumption means less ability to pay tax.According to Nicholas Kaldors theory, revenue should be the base of tax, not income. But here comes a enigmatical question what if a person saves most of his/her income in the bank, rather than for consumption? Moreover, revenue tax base would affect the money supply on the capital market, because most people would tend to shorten their consumption and save mon ey in banks. In a nut shell, all of these three tax bases have advantages and disadvantages, and there is no perfect tax base that can very fairly measure all taxpayers ability. So when considering the tax system, we should keep a balance between these three tax bases. . 3 military rating of a good taxation system What are the qualities of a good taxation system? Of course, aught likes paying tax however, tax is the main source for government revenue, which is used for providing public operate. So we can also say taxpayers pay for the services they received, such as high ways and public schools. A good tax system should be both simple and equitable and simple. Equity has two directions one is horizontal and the other is upright. Horizontal equity means taxpayers with similar income should the same level of tax vertical equity means taxpayers with higher income should pay a high level tax. point though companies have to pay corporate tax, all taxes are ultimately paid by individual taxpayers. So it is extremely important to keep tax system to be equitable. Besides, simple is also an important quality to a good tax system. The rules and laws should be easy to understand the tax liability should be easy to calculate and the tax system should be easy to administer. If the cost to administer the tax is more than tax revenue received, this kind of tax system is inefficient to both taxpayers and government.Complicated tax laws are costly to both taxpayers and the government such laws are hard to administer and inefficient to collect. In addition, a good tax system should also be certainty, which means that the tax policy should keep being fixed year to year, because this can make taxpayers to know the difficulty to evade tax payable and make a reasonable tax intent on the long run. On the whole, equity and efficient principles are two main principles to measure a tax system. A pie cannot be made both larger and divided fairly. The same situation happens here.We cannot wait a tax system to be both equity and efficient, for example, when cut down the marginal income tax rate for those high income taxpayers, their productivity would increase accordingly, while the tax equity would mitigate. However, there is unceasingly a comparably good point between them, which we often call tradeoff. 1. 4 Evaluation of the UK taxation system In the UK tax system, income tax, national insurance, value added tax and corporation tax are the four main source of governmental revenue the percentages are respectively 29%, 19%, 15% and 9%. On the whole, the UK tax system is quite stable.According to Huijun Yang (2012), from mid 90s 20th century, the ratio of total tax on gross domestic product is between 36% and 39%, so it would be easy for taxpayers to make a tax plan. In addition, the UK tax system is quite equity for its income tax rate ranges from 10% to 50% and low income taxpayers can deduct allowances too. In 2012, the income tax personal allowance incre ases from 7,475 to 9,000 and the highest income tax rate decreases from 50% to 45%. This revolutionary rule will benefit 23,000,000 basic income tax rate taxpayers. The UK tax system also operates efficiently and the cost to administer tax is comparatively low.So overall, the UK tax system is well designed and works both efficiently and equity. However, there are still round drawbacks of the UK tax system. Firstly, the highest tax rate will be 45% in 2013, so the income gap between the rich and the poor will get bigger and bigger. Secondly, the tax takes less than 40% of the GDP, while, on average, government expenditure is 45% of the GDP, which means that the government hire to increase their deficit to keep going on. Too much deficit will increase the governments pecuniary force, because the borrowing must be paid by future years tax revenue.If the deficit always keeps on a high level, the governments authority among public would be weaken, and government function cannot be operated well. Thirdly, individual tax is prepared and paid by individuals these tax preparation costs, including service fee of accountants and time cost, are also hidden costs for taxpayers. At last, the British government provides comprehensive social welfare to all citizens among them, most taxpayers pay for the services, but some lower income taxpayers or discharged people enjoy the services free of charge.So it is those high income taxpayers pay money for the low income taxpayers, and this would decrease those high income taxpayers work efficiency because some of their work are not rewarded. According to Holdford and Lovelace-Elmore (2001, p. 8), Vroom asserts, Intensity of work effort depends on the cognition that an individuals effort will result in a desired outcome. 1. 5 suggestions for the UK taxation system The following suggestions may be work to solve those drawbacks * Creating more jobs for the poor and unemployed people * Increasing the highest rate of income tax O ptimize the tax structure * Simplifying complex tax law clause * Decreasing the corporate tax rate for starting companies 2. 1 proposals for the UK taxation system In the UK, the main taxes are income tax, inheritance tax, council tax, value added tax, motoring taxation, corporate tax and capital gain tax. Even though all taxes have different tax bases, the ultimate taxpayers are every individual. As we know, a pie cannot both be big and evenly sliced. So for the UK government, it should find out a good point that can make the tax system be both efficient and equity.According to the 2012 Budget statement by the Chancellor of the Exchequer, the Rt Hon George Osborne MP (2012), the main target for the UK government is to keep the economy in a stable increase trend. As mentioned in Osbornes report, the UKs economy is in a depressed time and the government has to both cut down expenditures and expand tax revenue. Therefore, we proposed three proposals on the tax system to improve the de velopment of economy. Firstly, divide more the income tax rate levels between the higher rate and surplus rate.According to the current UK income tax system, taxpayers with skirt between ? 34,371 and ? 150,000 are applicable to the higher rate that is 40%, and taxpayers with mountain over ? 150,000 are applicable to 50% additional income tax rate. Apparently, the range from ? 34,371 and ? 150,000 are too big that some mid-class families have to pay too much income tax for the high marginal tax rate. Taxpayers with income of ? 34,371 and ? 150,000 are totally different in tax payment ability, so it is not fair to let all of them pay tax on the same rate. From my point of view, taxpayers with band between ? 4,371 and ? 70,000 are applicable to tax rate of 25% because most mid-class taxpayers incomes are in this range and by doing so, there financial pressure will be bowdlerised a lot taxpayers with income ranges from ? 70,000 to ? 100,000 are subjects to 35% income tax rate and t axpayers with band from ? 100,000 to ? 150,000 pay income tax on 45% income tax rate. This proposal will greatly reduce the most mid-class taxpayers financial pressure and as the marginal tax rate increases for high income taxpayers, the total tax revenue for government will not decrease.Secondly, impose property tax on people who own lavishness houses or own more than three houses. In many countries, the property tax is imposed on individual house owners because real perporty is a remark of wealth. The property tax can help to reduce the gap between the rich and the poor. Moreover, as the tax is imposed on multiple house holders, the economic bubble in real estate investment or speculation will be greatly eliminated. Currently, the property tax is imposed on gains from capital, such as house rental not on capital itself. Even though taxpayers pay tax on their capital gain, the income gap still increases.At last, decrease the rate of stamp duty for bond or stock transactions. Curre ntly, the stamp duty rate is 0. 5%. As mentioned in the UKs budget statement, the main target in 2012 is to keep the economy to be stable not do slow down. The decrease of stamp duty is really a good method to stimulate the economy development. On the one hand, the decrease of stamp duty is a good remark for the stock market, which would encourage more stock transactions. On the other hand, even though the rate of stamp duty decreases, as more transactions there will be, the total revenue from stamp duty will still increase.As we know, UK is the center of worldwide stock market center. Stock market is the main capital source for public companies, so the boom of capital market will greatly supercharge the development of entity economy. In conclusion, the UKs tax system is well organized and designed except for some drawbacks. I believe my proposals can effectively improve both equity and efficiency of the UK tax system and stimulate the economy development. Reference list Budget sta tement by the Chancellor of the Exchequer, the Rt Hon George Osborne MP, 2010. HM TREASURY. online operable at http//www. hm-treasury. gov. uk/junebudget_speech. htm Finance Act 1965 (c. 25), from UK Statute Law Database. UK Statutory Publications Office,Ministry of Justice. Retrieved 2007-05-09. HM Revenue and Customs gross. hmrc. gov. uk. Retrieved 2011-11-11. Kay, Richard. Palace fear over Queens tax bill. Daily Mail(London). Peter Victor (30 July 1995). A brief history of VAT. The Independent(London). Retrieved 13 January 2011. Principles of a good tax system,2010, tutor2u, online Available at