Uk Taxation System

1. 1 Introduction of the UK value administration There is a truly long clock before British revenue enhancement be progresss what it is now, which fag end be traced back to Ancient times when UK was a part of the Roman Empire. The akin land assess revenue in 1692 is the basis to the current British valuate system at that time, the land revenue is a kind of localise imposeation and is the chief(prenominal) source of political science revenue. Before the end of eighteenth century in British, William Pitt announced income measure to cover the expenses on weapons in the preparation for the Napoleonic Wars. Initially, the impose drift was around 1/long hundred of the income supra ? 60 and the step increased to 1/10 of income above ? 200.In the 20th century, income evaluate is the main resource for UK organisation in the remember time, indirect valuees also became more important through the century. In 1965, the potbelly value and the nifty gains assess were int roduced, and in 1984 the capital transfer tax was replaced by inheritance tax. Currently, the gross system in the UK force out be mainly categorized as person-to-person tax, including income tax, inheritance tax and council tax, gross sales taxes and duties, including value added tax, excise duties, stamp calling and motoring utility, business and personal taxes, including national insurance contri exceptions and capital gains tax and business taxes.As a total monarchy, the power of legislation is racyly concent grazed. All tax laws argon from proposals from the treasury Department and after approved by parliament and the royal, these proposals keep come into effect and become laws. In the UK, nearly 90% of tax income is poised by central authorities. The HM Revenue & Customs takes charges of tax ar digressment related af circuss, including value added tax, sales revenue and tariff. 1. 2 Discussion of the UK taxation posteriors In computing the tax, we gather in to consider two parts tax unspiritual and tax rate.Tax free radical is the economic basis of a legitimate tax and it is the base amount to compute the tax liabilities. Tax base is diametrical from tax object, for example, the total income is the object of income tax, while however the dutiable income can be regarded tax base. On the whole, tax base has two categories economical tax base and non-economical tax base. Economical tax base marrow the objects of tax that are related to economical actions, such as revenue, capital and sales non-economical tax base has nonhing to do with masss economical actions, such as the poll tax that is taxed on every individual person without their actions.In the UK, thither are three kinds of tax bases income base, capital base and consumption base. The income base is mainly use in individual income tax and corporate income tax. In virtually countries, revenue from income tax is the main source of government, so income tax base certainly ha s few(prenominal) advantages. Firstly, income tax base is much larger than opposite tax bases, because sight with income above taxable allowance are the subjects to income tax. Furthermore, for most flock, tax found on income is lightsome to por unravel 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 niftys, income tax base would not work. Obviously, it is partial to not tax on unafraids income. Secondly, income has many sources some are easy to track, such as wages and bonus, while some are not easy to detect, such as illegal sales commissions. At last, different people have different might to throw the tax and income is not a good indictor to standard their tax abilities. So it is very unspoken to pull ahead a rule or rate to keep fair among every taxpayer. Capital can be used to look at income and can reflect individuals paying strengt h, 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 suffer with mortgages and without mortgage should not be regarded same, so capital tax base also has some drawbacks. At last, consumption is also a measurement of top executive to pay tax more consumption operator more ability to pay tax and less consumption mover less ability to pay tax. fit in to Nicholas Kaldors theory, revenue should be the base of tax, not income. notwithstanding here comes a confusing question what if a person saves most of his/her income in the bank, rather than for consumption? Moreover, revenue tax base would uphold the money supply on the capital market, because most people would tend to shorten their consumption and save money 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 amongst these three tax bases. . 3 Evaluation of a good taxation system What are the qualities of a good taxation system? Of course, secret code likes paying tax however, tax is the main source for government revenue, which is used for providing cosmos work. So we can also say taxpayers pay for the function they received, such as high ways and public schools. A good tax system should be both simple and equitable and simple. rectitude has two directions one is horizontal and the other is vertical. Horizontal legality means taxpayers with similar income should the same level of tax vertical equity means taxpayers with higher(prenominal) income should pay a high level tax. make up though companies have to pay corporate tax, all taxes are ultimatel y 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 propagate. If the woo 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 stable year to year, because this can make taxpayers to know the difficulty to evade tax payable and make a reasonable tax plan 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 large and split up fairly. The same situatio n happens here.We cannot expect a tax system to be both equity and efficient, for example, when cut down the fringy income tax rate for those high income taxpayers, their productivity would increase accordingly, while the tax equity would diminution. However, there is always a comparably good point between them, which we lots 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 quaternion main source of governmental revenue the percentages are respectively 29%, 19%, 15% and 9%. On the whole, the UK tax system is preferably 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 take time off allowances too. In 2012, the income tax personal allowance increases from 7,475 to 9,000 and the highest income tax rate decreases from 50% to 45%. This new rule result 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 whole kit and caboodle both efficiently and equity. However, there are still some drawbacks of the UK tax system. Firstly, the highest tax rate leave alone be 45% in 2013, so the income gap between the rich and the poor go forth 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 need to increase their deficit to keep dismissal on. Too much deficit will increase the governments financial pressure, because the borrow 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 vigilant 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 unemployed 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 perception that an individuals effort will result in a want 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 unemplo yed people * change magnitude the highest rate of income tax Optimize the tax structure * Simplifying complex tax law clause * Decreasing the corporate tax rate for showtime 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 every bit 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 calculate program line 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 down in the mouth time and the government has to both cut down expenditures and expand ta x revenue. Therefore, we proposed three proposals on the tax system to improve the development of economy. Firstly, severalize more the income tax rate levels between the higher rate and supererogatory rate.According to the current UK income tax system, taxpayers with gang between ? 34,371 and ? 150,000 are applicable to the higher rate that is 40%, and taxpayers with band over ? 150,000 are applicable to 50% additional income tax rate. Apparently, the range from ? 34,371 and ? 150,000 are too wide 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 retribution 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 lessen a lot taxpay ers with income ranges from ? 70,000 to ? 100,000 are subjects to 35% income tax rate and taxpayers 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 luxury bears or own more than three houses. In many countries, the property tax is compel on individual house owners because genuinely perporty is a remark of wealth. The property tax can table service 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 inc ome gap still increases.At last, decrease the rate of stamp duty for bond or stock transactions. Currently, 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 embolden 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 pore of worldwide stock market center. Stock market is the main capital source for public companies, so the boom of capital market will greatly promote the development of entity economy. In conclusion, the UKs tax system is well organized and designed except for some drawbacks. I confide my proposals can effectively improve both equity and efficiency of the UK tax system and stimulate the economy development. Reference list Budget statement by the Chancellor of the Exchequer, the Rt Hon George Osborne MP, 2010. HM TREASURY. online Available at http//www. hm-treasury. gov. uk/junebudget_speech. htm Finance consummation 1965 (c. 25), from UK Statute Law Database. UK Statutory Publications Office,Ministry of Justice. Retrieved 2007-05-09. HM Revenue and Customs receipts. hmrc. gov. uk. Retrieved 2011-11-11. Kay, Richard. Palace fear over Queens tax bill. Daily beam(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