Key Business Tax Policies in the UK A Critical Analysis Assignment Sample

• Type Assignment
• Downloads573
• Pages6
• Words1422

1. Examples of fundamental tax principles and UK tax policies

Achieve more with less effort through Rapid Assignment Help’s efficient and results-driven Assignment Help services.

In the UK, the tax system for companies is intricate and multidimensional, reflecting economic policies, historical practices, and the desire to strike a balance between income production and justice. Let's examine critically by looking at the rationale for the tax disparities amongst sole proprietors and incorporating firms, the distinction between capital gains and income taxes, and the difficulties and solutions to simplify the tax system.

Distinct Taxes Apply to Incorporated Businesses and Sole Traders

Legal Structure and Liability

The legal form of enterprises is one of the main causes of tax differences. Some traders are subject to separate taxes and are subject to limitless liability, which puts their personal assets at risk. Limited liability for business organizations keeps personal and company assets apart and results in differing tax implications for them (O’Brien and Pike, 2019).

Historical Evolution

Since the concept of income tax's inception, the UK's tax code has changed, with distinct tax treatment for businesses and individual proprietors. The tax system is still influenced by this historical history. Fairness and accessibility are two further factors that determine the difference between companies and single proprietors (Maffini et al. 2019). Since corporations have minimal accountability, it is appropriate to tax their earnings at higher rates. 

Different Taxes for Income and Capital Gains

Differing Policy Objectives

Capital gains taxes are intended to foster investment, entrepreneurship, and economic progress, whereas taxation on earnings is mostly employed to support public services and reduce income disparity. 

Economic Considerations

Tax computations are made simpler by combining income and capital gains. Politicians may find it difficult to prevent tax-related preparation and avoidance, nevertheless, as a result of this. Taxing both earnings and investment gains accomplishes distinct economic goals. The purpose of taxing income is to redistribute wealth and raise money (Best and Kleven, 2018). Investment gains taxes offer favoured rates on profits from investments in property, which stimulate investment and entrepreneurs. 

Challenges Faced by Policymakers and Attempts to Overcome Complexity 

Complexity and Tax Evasion

The intricate tax structure in the United Kingdom presents prospects for fraudulent activity and evasion of taxes. Legislators have worked to improve tax enforcement, enact anti-avoidance measurements, and streamline the tax law (Bournakis and Mallick, 2018). The UK must modify its tax structure to handle the problems posed by the growth of digital firms and internationalized markets, particularly with regard to the taxation of international companies.

Fairness and Equity

Achieving tax equity is still a difficult task and it's difficult to strike a balance between making sure all companies pay the appropriate amount of taxes and encouraging entrepreneurial and economic growth. As per the narration of Carattini et al. (2019), legislators frequently alter tax laws to reflect shifts in the economy and in how businesses operate. One example of this is the implementation of Making Tax Digital (MTD), which would streamline the process of paying taxes.

Examples of Fundamental Tax Principles and UK Tax Policies

Struggling to grasp supply and demand curves or economic equilibrium? Our economics assignment help simplifies these concepts, providing clear explanations and well-researched solutions.

Principle of Equity

The idea of equality is reflected in UK tax policies, which aim to impose a heavier tax burden on individuals and firms with higher earnings or profits. This is achieved principally through the use of progressive income tax rates. As per the narration and explanation of Gavazza et al. (2019), the tax system seeks to manage complexity and assure cooperation while reflecting core ideals and taking into account the current economic and political situation of the United Kingdom.

Investment Promotion

The Entrepreneur's Relief and Investors' Relief favourable capital gains tax rates are designed to incentivize participation and support entrepreneurial activity. The government's determination to combat tax evasion and avoidance is evidenced by the General Anti-Abuse Rule (GAAR) and the Diverted Profits Tax (DPT). 

2. Different tax concessions for different types of businesses

In tax policy, the subject of whether various business kinds should receive different tax reductions is a complicated and hotly contested topic. Differential tax concessions' suitability ultimately depends on a number of variables, such as societal ideals, ease of administration, justice, and economic objectives. Some considerations are listed below:

Economic Objectives

Various company models fulfil distinct economic functions. Achieving certain policy goals might be facilitated by offering tailored tax breaks. For instance, offering tax breaks to new and small companies can encourage economic expansion and entrepreneurship.

Promoting Investment

Equity problems can be addressed by tax concessions. In order to level the playing field and assist those in need, concessions for low-income companies or sectors suffering financial difficulties, for example, might be considered.

Arguments against Different Tax Concessions

Complexity

Whenever too many concessions are introduced, the tax system may become too complicated. Organizational difficulties, tax evasion, and higher compliance costs for companies and tax authorities are frequently caused by complexity. 

Fairness and Horizontal Equity

Differentiating tax breaks might raise issues with horizontal equality, the theory that people or companies in comparable economic circumstances ought to pay similar taxes. Giving preference to some companies might be seen as unjust to others.

Revenue Impact

Concessions have the potential to lower governmental income, which might restrict the amount of money available for the construction of public facilities and amenities.

Balancing Act

In actuality, finding a balance is frequently required when deciding which kinds of firms should receive distinct tax breaks. The precise budgetary, social, and economic goals must be taken into account by policymakers, as well as any possible negative effects of making such compromises. Streamlining the tax law, closing loopholes, and making sure tax breaks are clear, well-targeted, and routinely adjusted to reflect shifting financial circumstances are a few choices (Alesina et al. 2019). In the end, the suitability of various tax breaks is determined by the broader context of tax policy, the government's particular objectives, and the necessity of fostering economic growth, equity, and transparency while guaranteeing sufficient funding for the delivery of public services and goods.

3. Conclusions and recommendations for UK tax policy in the future

Conclusion

Due to its many exclusions, subsidies, and incentives, which may make administrative and compliance difficult, the UK tax system might need some clarification and simplicity. Since financial and social gaps still exist in the UK, achieving equality and justice in the tax system will be an ongoing struggle. Sustainability should be promoted by the tax system as environmental concerns gain importance. A review of the tax code is necessary due to the emergence of the internet-based economy and the difficulties in imposing taxes on international companies. In order to ensure that the tax system is in line with the nation's changing economic and social objectives, it needs to be regularly reviewed and evaluated. Administrative effectiveness and the capacity to stop tax fraud and minimization are crucial.

Recommendations

Reduce the amount of exclusions, allowances, and incentives in the tax system to make it simpler. In order to reduce the cost of compliance for both people and corporations, strive for a tax system that is more clear-cut and straightforward. In order to cut down on the expenses associated with compliance for both people and businesses; strive towards a simpler and more transparent tax system. Assess the tax system's progressiveness and take changes into account to make sure that people with greater wealth and salaries pay their fair amount and if it is thought suitable, investigate possibilities for reducing wealth disparity, such as a wealth tax. In order to foster creativity and competitiveness, governments will keep offering specific tax advantages to companies, such as R&D tax credits. Work together with foreign partners and modify tax legislation to adequately handle the issues associated with taxing internet services and multinational businesses.

Reference list

• Alesina, A., Favero, C. and Giavazzi, F., 2019. Effects of austerity: Expenditure-and tax-based approaches. Journal of Economic Perspectives, 33(2), pp.141-162.
• Best, M.C. and Kleven, H.J., 2018. Housing market responses to transaction taxes: Evidence from notches and stimulus in the UK. The Review of Economic Studies, 85(1), pp.157-193.
• Bournakis, I. and Mallick, S., 2018. TFP estimation at firm level: The fiscal aspect of productivity convergence in the UK. Economic Modelling, 70, pp.579-590.
• Carattini, S., Kallbekken, S. and Orlov, A., 2019. How to win public support for a global carbon tax. Nature, 565(7739), pp.289-291.
• Gavazza, A., Nardotto, M. and Valletti, T., 2019. Internet and politics: Evidence from UK local elections and local government policies. The Review of Economic Studies, 86(5), pp.2092-2135.
• Maffini, G., Xing, J. and Devereux, M.P., 2019. The impact of investment incentives: evidence from UK corporation tax returns. American Economic Journal: Economic Policy, 11(3), pp.361-389.
• O’Brien, P. and Pike, A., 2019. ‘Deal or no deal?’Governing urban infrastructure funding and financing in the UK City Deals. Urban Studies, 56(7), pp.1448-1476.