History and Todays Role of Taxation - Essay Example

TAXATION In 1798, William Pitt, who is still Britains youngest Prime Minister, although the term Prime Minister was not use in those days, at the ageof 24, implemeneted Britains first tax system. It was designed to cover the cost of weapons for The Napoleone War and sat at two old pence to the pound. It was soon lifted to 10% of earnings over £200 and raised £6 Million. Taxation was abolished in 1803 and reintroduced in1803. It was again abolished in 1816 and wasnt reintroduced until the advent of "The Income Tax Act of 1842" (wikipedia.org) because of a growing budget deficit. Taxation has changed greatly over the years and the rates of tax have also changed. In 1974 the top taxation rate increase to a massive 83% and this applied to earnings of over £20000 and affected some 750000 people. Margaret Thatcher reduced it to 60% and by 1988 it had reduced to 40%. The highest top rate of taxation was reached during World War 11 at 99.25% and remained at 95% until late in the 1980s. It now stands at 50%. There are two avenues for Tax collection. Central Government(HMRC), via a variety of methods including, of course, income tax,VAT, corporate taxes, National insurance and a variety of excises such as on fuel and cigarettes. The other, local government which gather its revenue through Central Government Grants, council taxes and various rates. In the last financial year the government collected £446 Billion in taxes. Income Tax pulled £247 Billion, Vat earned the government £83 Billion and Corporate tax pulled in £42 Billion.The tax year runs from the 6th of April in one year until the 5th of April the following year. The odd dates come about through events(collection days for rent) in the 18th century and the Gregorian calender. Taxation is a system that government uses to collect funds to finance expenditure and has come a long way since 1798 .Remember, every penny the government spends, whether it be on defence, medical, transport and even the politicians trips abroad, are paid for by your taxes. The government funds a whole gamut of benefits for individuals and families from income tax. There a several bebefits for the extra costs of children to families. There are Maternal and Paternal benefits for pregnancy.You can get Pregnancy Grant and Maternity Allowances.There is assistance for families with disabled children and help with child care and so our taxation money does sometimes come back to us. Tax is a charge imposed on citizens and corporations, and, a large piece of your earnings is taken by Taxation . The taxation system is a complex and sometimes confusing entity with a variety of concessions and rebates. A Tax return must be completed each year to declare your taxable liabilities based on your earnings. You are able to claim tax deductions for a great many commodities including expenses incurred while earning your living. Electricity and water rates, rent, travel are among tax deductable items. Therefore, your taxable income is your income earned minus the costs incurred in earning that income.If you pay your tax via paye and you affairs are straight forward you may not have to complete a tax return, however if your affairs a little more complicated and you have income from more than one source you may need to complete a tax return. If you are self employed, a company director or if you receive income above certain levels from savings and investments or properties and deceased estates you will need to complete a tax return. HM Revue and Customs(HMRC) will contact those citizens by mail, who, need to file a tax return and will impose penalties for late submissions. All paper returns, that is, returns manually filled out on tax return forms by hand must be filed by Midnight on the 31st of October unless notification from HMRC is received later than the 31st of July, in which case you are given three months from date of receipt to file return . All online returns, returns submitted on the internet, must be filed by Midnight on 31st of January with the same provisions as paper returns for notifications after the 31st of July. You will need to provide all of your personal details as well as employment details including yearly earnings. Details of income outside your employment will need to be provided. Any contibutions to pension or pensions received. Income from any rental properties, investments and life insurance, and, any of those costs incurred in earning your income, such as travel and uniforms.Your bank details may also required. There are many items with Tax exemptions . Although all income is taxable, there are tax exemptions on income derived from Government Bonds, National Savings and Investments. A variety of Tax reliefs are also available on Individual savings, Pension funds, Trusts, Investment Schemes and Insurance Bonds.Any income gained by charities in The UK are usually exempt from tax.There are also many historical tax exemptions that have never been revised. For instance , there is a special low Tax rate for the Royal Family so as to avoid inheritance tax. There is "An Act of Parliament to protect the Earl of Abingdon and his “heirs and assignees” from paying income tax on the tolls on the Swinford Toll Bridge." (wikipedia.org). There are also tax exemptions for certain classes of person. Capital gains tax is paid on your desposal of property, whether you have sold it or given it away you will pay a tax on the gain that was made.Capital gains is the gain in value from purchase price to desposal price of assests such as property or shares and this also must be declared. Even if you give an asset away as a gift you may have to pay a Capital Gains Tax on the increase in value of that asset. An example of Capital gain would be, your purchased a house in 1990 for £120000 and you disposed of it in 2010 for £210000, you have gained £90000 (£210000 less £120000). Your Capital Gain obligation is therefore £9000 VAT(Value Added Tax) was introduced to UK in April 1973 at a rate of 10% and the following year reduced to 8%. By 1979 it had swelled to 15% and in 1991 increased to 17.5% If your business exceeds £73,000 a year in sales you may need to register for VAT. VAT is a tax charged on goods and services provided by VAT registered businesses in UK, and is the third largest source of income for the government.Some items draw a reduced tax while items such as food and childrens clothing are not taxed at all. It is, in effect a consuption tax.In Australia, New Zealand, US and Canada it is known as a Goods and Services Tax (GST).Many will argue that it was the saviour of their economies. Whenever supplying goods and services to another Vat registered business you must supply a VAT invoice. A return is issued automatically To VAT registered businessess and must be returned quarterly along with any VAT payments due. There is also the capability to access VAT on line to file your return electronically. Apart from VAT number and business particulars you will need to supply totals of VAT charged, still owing. VAT you have paid on your purchases and your total sales. SAMPLE VAT INVOICE ______________________________________________________ CREATIVE SIGNS 50 Painted Drive London Tel:0208 345 678 VAT NO. 44-555-666 _______________________________________________ Invoice No 1234 Date 7/12/2010 Due Date 8/12/2010 To Industrial Plastics Pty Ltd ________________________________________________ SERVICES FEES 5 days @ £1000 per day £5000 £ Sub Total £5000 + VAT 17.5% £ 875 TOTAL £5875 Payment Payment within 30 days Terms : _____________________________________________ Corporate tax is a tax on profits of Corporations and Organisations and this tax is charged irrespective of were in the world those profits are made or . A Corporate tax return must be filed within twelve months of the end of your corporation or organisations tax accounting period.By claiming a gift-holdover relief a corporation can gift shares and properties without paying a capital gains tax. The tax does not have to be paid until the recipient sells the investment.The claim is to be made by both the corporation and the recipient of the asset. Prior to 1965 Companys and individuals paid the same tax.Initially all companys paid tax on their profits and share holders paid tax on their dividends. this was amended in 1973 so that he individual receiving the dividend was given a tax credit in lieu of the tax already paid by the company paying the dividend. There have been meny problems with the Corporate Tax system with the The European Court of Justice declaring it against European Treaty. The Labor government, with the support of the opposition rewrote the Corporate law act in 2010. Advance Tax is simply The Paye(Pay As You Earn) tax system. Most employees pay there tax as the earn their wages and their taxation obligation is deducted from their wages on each and every pay day. A percentage of earnings is deducted for tax purposes. There is a Paye tax threshold and if your earnings are less than £7475 a year you will not have to pay tax or complete a tax return. Earnings above the threshold and up to £35000 will pay their tax at the rate of 20% of their earnings. If you earn between £35000 and £150000 your tax obligation will be at 40% of your earnings and earnings over £150000 incur a tax rate of 50% of your earnings. These rate will vary according to marital status and Number of dependant children. The total tax due is the amount of tax payable for that year as calculated on the calculation pages of your return. Penalty and Penal rate of interest pertains to the penalties incurred for the late filing of return and the interest charged on the late payment of Tax owing. If your return is lodged after the 31st of December and the 31st of January in the case of on line lodgemment there are late lodgement fines. Even if you have no tax to pay or have paid what you owe, after 1 day late, you will be fined a £100 fixed penalty. After 3 months late you will be fined £10 for each ensuing day up to £900 as well as the fixed penalty of £100 . After 6 months late you are fined £300 or 5% of tax due whichever is higher on top of previous fines. If you are twelve month late the fine is another £300 or 5% of tax whichever is higher on top of all privious fines. You must pay you tax due by the 31 January ,the following year. If you are 30 days late you are fined 5% of total tax bill. After 6 months you are charged another 5% on top of the 5% already accrued and after twelve months another 5% of tax owing on top of previous penalaties. I iterate, the taxation system is a very complex and confusing thing to understand and there are many, many ways in which tax deductions can be claimed and just as many ways to claim exemptions. In most cases, preparing a tax return is something for a professional Tax Accountant, so as to maximise your returns.The taxation systems around the world are basically the same . The all have taxable income and tax deductions. Most have a goods and services tax(VAT or GST). Corporate Taxes and Capital Gains Tax are common in most countries. Most countries practice paye( Pay As You Earn) and all those governments use our taxes to fund the same things. Health, transport, security, defence, education, science and welfare to name just a few. In all of these countries, when tax time comes the head aches come. People begin going through the previous years receipts and payments. Trying to find some of those tax exemptions discribed earlier in this paper. They are trying to find those items they can claim as a tax deduction. Some are planning a holiday on the back of their tax refund and others are wondering how they are going to pay their tax bill. So, the taxation system is not only complex and confusing, it is the largest single entity on this planet. There are so many intricacies that have not been touched here. Tax evasion, for instance, has cost us millions of pounds a year, I bet there arent many of us who havent cheated a little at tax time.Tax evasion cost the UK £15.2 Billion in lost revenue in 2010. There is a difference between Tax Evasion and Tax Avoidance however. Tax avoidance is and attempt to reduce tax by legal means while Tax Evasion is an attempt to not pay taxes by illegal means. The National Fraud authority claim that tax fraud has cost the UK £30 billion in 2010. Multiply similar amounts by the number of other countries and there is nothing to match it. Million dollar movies have been made about it and men have become imfamous over it. Maybe if our governments gave us a break every now and then the instances of Tax cheating would be reduced. It is no wonder that Tax Return Time strikes fear into the heart of many. Research http://www.hmrc.gov.uk. HM Revenue & Customs.. net 12th july 2011. n.d. Ehrman, John (1984) [1969]. The Younger Pitt Vol. one: The Years of Acclaim. St Edmundsbury Press. net. 13th July 2011 Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 268, 508.net. 13th july 2011 "Guide to Personal Taxation." direct.gov.uk. n.p.. n.d. net. 13th july 2011 Read More