Tax on Business

3 Key excerpts on "Tax on Business"

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  eBook - ePub

  What Everyone Needs to Know about Tax

  An Introduction to the UK Tax System

  • James Hannam(Author)
  • 2017(Publication Date)
  • Wiley

    (Publisher)

  Chapter 4 Taxes on business

  Taxing business

  Business is the way that a country makes its way in the world. We need businesses to generate the money and provide most of the goods and services that we consume day by day. Almost all businesses are in the private sector and they range from sole traders, such as a man with a van or a self-employed gardener, all the way up to the largest companies, like the oil giant BP and the pharmaceuticals leviathan GlaxoSmithKline.

  Much of the money that businesses make is spent on paying the people who work for them. That's as true for a self-employed builder (who is only paying himself) as it is for the biggest multinationals. We noted in Chapter 1 how businesses pay over the income tax and national insurance on our salaries to the government. And in Chapter 2 we saw that businesses are also responsible for collecting VAT (although we are the ones who pay it). But the administration of these taxes is no doddle and it is firms that have to pay the penalties if they mess it up. The UK's tax collection system has effectively been privatised. While HMRC is nominally responsible, it has subcontracted most of the donkey work. Getting businesses to pay our taxes for us has the advantage of ensuring that we stay largely ignorant of just how much we pay. It's the Third Golden Rule, keeping taxes invisible, in action.

  Tax on the self-employed and small businesses

  If you are self-employed, the taxman will charge income tax and national insurance on all your earnings from your business after deducting expenses. You end up paying about the same amount of tax as you would if you were being paid a salary equal to your profits by an employer. There are a couple of advantages to self-employment. You pay slightly lower national insurance and don't have to pay employers' NICs. (Although you do have to cough up a small extra amount of national insurance called Class 2 contributions of about £145 a year. This trivial and fiddly tax is due for abolition.) You also don't always have to pay the tax you owe immediately. Sometimes you can defer the tax on your profits for 20 months after you have earned them.

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  eBook - PDF

  Taxation: Policy and Practice (2021/22) 28th edition

  • Andy Lymer, Lynne Oats(Authors)
  • 2021(Publication Date)
  • Fiscal Publications

    (Publisher)

  Tax reliefs can also be offered by a government to encourage activity that might not otherwise occur but that is considered beneficial for society in some way. For example, creating freeports or enterprise zones which have lower than normal taxes to persuade businesses to locate in particular areas. We will look at these tax reliefs, or tax expenditures, more closely in Chapter 14. Taxation, therefore, is a very important feature of a modern society and the nature of a particular tax system reflects the views of its society, and government, at a point in time. Tax systems change regularly as society modifies its views on how best to balance the various aspects of the basic functions of government listed above. They also change as society’s views of the balance of the importance of particular issues in the society, such as environmental protection, change over time. Key changes in the tax system often therefore occur when government philosophies change, such as when power in the Government shifts from one political party, or several parties in coalition, to another after an election. 1 The framework of UK taxation 3 What is a tax? 1.3 Before we study the history of tax and examine the current UK rules for taxation in detail, we must understand what a tax is. All taxes have some features in common. They are a compulsory levy, imposed by government or other tax raising body, on income, consumption, wealth or people, for which the taxpayer receives nothing specific in return. Not all payments to a government are taxes however. Charges, fees for services, costs for provision of goods supplied by a government entity (e.g. electricity if the supply if state owned), tolls and other levies could be paid to a government, but where they are paid simply to cover the cost of providing something specific in return then they are not strictly taxes.

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  Construction Management

  • Daniel W. Halpin, Bolivar A. Senior, Gunnar Lucko(Authors)
  • 2017(Publication Date)
  • Wiley

    (Publisher)

  In modern societies, taxes have also been implemented to influence taxpayer behavior. For example, high taxes operate to increase the price of tobacco with the intent that fewer individuals will use tobacco products. Tax deductions are also granted to reward individuals and companies for undertaking actions that are viewed as being positive for the economy or society in general. Charitable gifts are usually either partially or fully deductible from taxable income. Some deduc- tions, for instance, may be given to individuals for the cost of insulating a residence with the intent of motivating individuals to make their homes more energy efficient. 6.4 Types of Taxes A tax levied on the net income realized by a company or individual is called an income tax. Income taxes are referred to as direct taxes. Indirect taxes, in contrast, are levied on the cost, price, or value of products or services (e.g., sales tax assessed at the time of purchase). The U.S. government relied almost exclusively on taxing resources other than income until the 16th Amendment to the Constitution was passed in 1913 (previous attempts to impose income taxes were short-lived). Although the focus of this chapter is on income taxes, everyone also pays indirect taxes. Some forms of indirect taxes will be discussed. 6.5 Income Tax Systems Business entities pay tax on taxable income, which is the revenue earned by the company minus the expense of doing business and any allowable deductions. In the case of individuals, taxable income is defined as gross income minus deductions. As was noted in Chapter 5, the corporate form of legal organization leads to double taxation because the corporation is taxed as a business entity and the stockholders are taxed separately as individuals for profits distributed to them as dividends. Stockholders are also subject to further taxation at the time of sale of stock if the stock has gained in value during the time between purchase and sale.

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