The UK Tax System

28/02/2019

A number of recent surveys have shown that a large proportion of the public do not have a clear understanding of the UK tax system and most Scots do not understand what taxes have been devolved to the Scottish Government.  The tax profession is tasked with helping to explain how the tax system operates to increase public awareness and understanding.  This article attempts to help with that project.

The UK government imposes various categories of taxation on UK resident individuals, companies, businesses, charities and other entities including: 

  • Income tax

  • Insurance Premium tax

  • National insurance

  • Stamp duty

  • Capital gains tax

  • Stamp Duty Land Tax

  • Inheritance tax

  • Annual tax on enveloped dwellings (ATED)

  • Corporation tax

  • Petroleum revenue tax

  • VAT (value added tax)

  • Fuel duty

  • Air passenger duty

  • Gambling duty

  • Landfill tax

  • Soft drinks levy

  • Aggregates levy

  • Alcohol and tobacco duty

HMRC administers the UK tax system and collects the money that pays for the UK’s public services such as the justice system (policing, courts and prisons) armed forces and defence, health and social care, transport & infrastructure, welfare benefits, state pensions, education, local authorities and so on.

The government decides tax policy and enacts legislation.

Tribunals and courts adjudicate on disputes between taxpayers and HMRC.

The Office of tax simplification (OTS) is an independent office of HM Treasury providing the government with independent advice on where there are areas of complexity in the UK tax system that could be simplified, conducting inquiries into complex areas of the tax system to collect evidence and advise the government on options for reform.  Its objective is to reduce the administration burden on individuals and businesses.

Of course not every resident pays the right amount of tax at the right time and some people disagree with HMRC’s interpretation of how the tax rules apply to them.  Therefore, a significant part of HMRC resources are deployed to tackle tax avoidance and evasion as well as handling disputes and disagreements.  Taxpayers are now obliged to disclose to HMRC if they are using a targeted avoidance scheme.  If a taxpayer is clearly flouting the intended tax effect of a particular rule (even though they can argue that they are complying with the law) then it is, in rare cases, possible for HMRC to invoke the GAAR (general anti abuse rule) to try to defeat the abusive behaviour and collect the tax they believe is due.  Over the last few years there is increased international cooperation between a number of countries’ tax authorities in an attempt to identify and counteract the actions of taxpayers who seek to hide their wealth in more than one jurisdiction and exploit differences between each nation’s tax rules to avoid paying tax that would otherwise be due.

In the past some UK governments have increased headline tax rates to a high level and this resulted in many people trying to avoid paying it, successfully in many cases.  The UK government’s approach in recent years has been to keep headline tax rates fairly low and take a tougher approach to enforcing compliance.  This appears to be a more successful strategy in increasing the total tax take and ensuring that the vast majority of taxpayers are compliant.

Remember it is your responsibility as a Scottish or UK citizen to find out what your duties are in relation to tax and to ensure that you are complying with the law, declaring all of your taxable income and gains and paying the right amount of tax.  If you discover that you have not paid the right amount of tax then you should bring this to the attention of the tax authorities and work with them to correct the position.  You can either do this yourself or seek advice from a qualified tax adviser such as Balfour+Manson.  HMRC tends to be more lenient when a taxpayer identifies the problem themselves and offers to correct it and more strict when HMRC finds the problem and the taxpayer is not straightforward and cooperative in correcting the position.

Disclaimer: The views and opinions expressed in this article site are solely those of the original authors and other contributors and do not purport to give specific legal advice. The information is current at time of writing but could be subject to change.