Taxation in UK Essay Example | Topics and Well Written Essays - 3000 words

Taxation in UK - Essay Example The paper tells that the Largest source of revenue collection for government is income tax. Everyone in the country has an income tax personal allowance below which he does not have to pay tax in a particular tax year. For people aging below 65 years have a tax allowance of  £6,475 in 2010-11. However, in June 2010, this figure has been increased by  £1,000 by the Chancellor therefore the tax personal allowance is  £7,475. If anyone has an income below the income tax personal allowance, he is not supposed to pay any tax however if the earnings of an individual is above the tax allowance then he is supposed to pay according to his earnings above this level. There are different tax bands and every tax band has a different tax rate. Corporation tax refers to the tax on the profits made by the organizations in United Kingdom along with profits made by permanent establishments of companies owned by non-UK residents as well as associations trading in European Union. Collection of cor porate tax is the fourth largest source of revenue collection of government. Before April 1965, both the corporate tax rate and individual tax rate were charged at the same rate though corporations were supposed to pay an additional profit tax. However, with the passage of time, there have been several changes to the corporate tax and since 1997, the laws have modified several times and now the tax rates of corporations and individuals have changed. (Tax Law Rewrite). Calendar year is a period of 12 months beginning from the starting of January and ending on 31st December whereas on the other hand, fiscal year is a period of 12 consecutive months ending on last day of any month except December (Tax Years). In United Kingdom, government financial year is a period of twelve months from April 1 to March 31. Corporations are allowed to adopt any year for their accounting purpose however any changes in the tax rate, the tax is charged on the basis of government’s financial year (I ntroduction to Corporation Tax). Taxable and Tax Rate An individual earns income from different sources. Some of these sources are taxable whereas some income is tax deductable. Some of the sources from where an individual earns is salary, profit from any business, rent income, dividend income, income on loan or any security including bonds etc. On the other hand, the income of corporations is the profits. Taxable bands and tax rate for the year 2011 – 2012 is as follows: Taxable income Rate of tax 0 - ?2,560 10 per cent (starting rate for savings  only) 0 - ?35,000 20 per cent (basic rate) ?35,001 - ?150,000 40 per cent (higher rate) Over ?150,000 50 per cent (additional rate) (Source: Income tax rates) Relevant Tax period Tax period is the period of 12 months in which the individual earns income from different sources and if all these sources accumulate to more than personal tax allowance then he is supposed to pay tax. importance of direct and indirect taxes Direct and i ndirect taxes are very important for every government as tax collection is one of the main sources of the government to collect revenues. Direct tax is defined as the tax that an individual pays directly to the government and this kind of tax is directly imposed on the individual or the organization by the government. On the other hand, indirect tax can have different forms like sales tax, value added tax (VAT), or goods or service tax (GST) and indirect tax is collected by another party or an intermediary. The intermediary initially takes the burden of this kind of tax and afterwards takes the amount of tax from the government by filling a tax return, therefore the tax is paid eventually to the government through another party. Therefore, indirect tax is indirectly collected by the government but with the involvement of an intermediary. Differences between Direct Tax and Indirect Tax Direct Tax Direct