The following taxes are examinable:
Direct/ Capital/
Tax Applies to Indirec Revenu
t e
Individuals on employment income,
Revenu
Income Tax self-employed income, and investment Direct
e
income.
Corporation
Companies on their profits and gains. Direct Both
Tax
Capital Gains Individuals on chargeable gains derived from
Direct Capital
Tax (CGT) the sale or gift of chargeable assets.
Inheritance Tax Individuals on capital transfers by way of gift or
Direct Capital
(IHT) as a result of the death.
Consumers (sole traders, partners, and
Value Added companies) on taxable supplies of goods and
Indirect Neither
Tax (VAT) services in the UK and on importation into the
UK.
Individuals on earnings of employment (Class Revenu
National Direct
1 NIC) and profits of self-employment (Classes e
Insurance
2 and 4 NIC). And businesses as employers
Contributions on employee earnings and benefits (Classes 1
(NIC) and 1A NIC).
The main professional bodies have issued guidance on the procedures to be followed in
the event of a possible irregularity in a client's tax affairs.
The adviser should explain the situation to the client and recommend disclosure
to HMRC.
If the client refuses to disclose after normal persuasive advice, then formal
written advice should be given regarding the potential consequences.
Tax offences that may amount to money laundering include tax evasion (see s.6.1) and
deliberate refusal to correct known errors.
Where the client will still not authorise disclosure, then the adviser must cease to act,
and also:
Advise the client they are no longer acting for them;
Notify HMRC they have ceased to act, if relevant, but not why;
If appropriate, consider whether to advise HMRC that accounts or statements
carrying a signed report can no longer be relied upon;
Respond in a professionally appropriate and careful manner to any professional
clearance letter from a subsequent adviser; and
Consider whether any reporting is required under money laundering regulations.
It would normally be good practice to at least refer the issue to the Money
Laundering Reporting Officer (MLRO) within the advising member's firm.
Statute law
Inheritance Tax Act 1984;
Taxation of Capital Gains Act 1992 ("TCGA92");
Social Security Contributions and Benefits Act 1992;
Value Added Tax Act 1994;
Capital Allowances Act 2001;
Income Tax (Earnings and Pensions) Act 2003;
Income Tax (Trading and Other Income) Act 2005;
Income Tax Act 2007 ("ITA07");
Corporation Tax Acts 2009 and 2010; and
Taxation (International and Other Provisions) Act 2010.
Which of the following are both direct revenue taxes?
A. Income tax and inheritance tax
B. Corporation tax and capital gains tax
C. Income tax and national insurance
D. Corporation tax and value added tax
The correct answer is C.
Which of the following is NOT a responsibility of a professional advisor when a
client refuses to authorise disclosure of an irregularity in their tax affairs?
A. Advise the client they are no longer acting for them
B. Notify HMRC of why they have ceased to act for the client
C. Consider whether any report is required under the money laundering
regulations
D. Respond in a professionally appropriate manner to any professional
clearance letter
The correct answer is B.
Which of the following statements is correct?
A. Tax avoidance is illegal and tax evasion can be legal
B. Tax avoidance can be legal and tax evasion is illegal
C. Tax avoidance and tax evasion are both illegal
D. Tax avoidance and tax evasion can both be legal
The correct answer is B.
1. Which of the following UK taxes is an indirect tax?
A. Capital gains tax
B. Inheritance tax
C. National insurance contributions
D. Value added tax
The correct answer is D
2. Which of the following is NOT statutory legislation?
A. Inheritance Tax Act
B. HMRC Statement of Practice 1
C. Social Security Contributions and Benefits Act
D. Capital Allowances Act
The correct answer is B.
Prathu baby is a sole trader.
Identify whether each of the following actions by Prathu baby would be tax evasion.
Failing to record cash sales true
Claiming personal expenses through the business true
Deliberately understating the value of closing inventory true
Postponing a sale of shares from 5 April until 6 April False
6. Which of the following statements correctly explains the difference between tax
evasion and tax avoidance?
A. Both tax evasion and tax avoidance are illegal, but tax evasion involves
providing HM Revenue and Customs with deliberately false information
B. Tax evasion is illegal, whereas tax avoidance involves the minimisation of tax
liabilities by the use of any lawful means
C. Both tax evasion and tax avoidance are illegal, but tax avoidance involves
providing HM Revenue and Customs with deliberately false information
D. Tax avoidance is illegal, whereas tax evasion involves the minimisation of tax
liabilities by the use of any lawful means
The correct answer is B
Taxes can be either capital taxes or revenue taxes, although some taxes are neither
type of tax.
Identify the correct classification for each tax
Value added tax neither
National insurance contributions revenue
Inheritance tax capital
What is the primary aim of progressive taxation?
a) To encourage economic growth
b) To ensure that higher earners pay a larger percentage of their income in tax
c) To simplify the tax system
d) To reduce government spend
Answer b
What is one key feature of a proportional tax system?
a) Tax rates increase as income increases
b) Tax rates decrease as income increases
c) The same tax rate applies to all income levels
d) No tax is applied to capital gains
Answer: c) The same tax rate applies to all income levels
3. How does a regressive tax system typically affect low-income earners compared to
high-income earners?
a) Low-income earners pay a smaller percentage of their income in tax
b) Both groups pay the same percentage of their income in tax
c) Low-income earners pay a higher percentage of their income in tax
d) High-income earners are exempt from taxes
Answer: c) Low-income earners pay a higher percentage of their income in tax
4. What is a key disadvantage of regressive taxation?
a) It reduces tax compliance
b) It places a higher burden on low-income earners
c) It discourages foreign investments
d) It increases tax rates for the wealthy
Answer: b) It places a higher burden on low-income earners
5. Which UK tax could be considered regressive in its practical impact?
a) Capital gains tax
b) VAT
c) Income tax
d) Corporation tax
Answer: b) VAT
Explanation of Concepts
•Progressive Taxation ensures equity by taxing higher-income earners at higher rates,
like UK income tax
•Regressive Taxation disproportionately affects low-income groups, as the tax paid
constitutes a larger share of their income, e.g., VAT on essential items.