Taxation Systems and the Legal and Ethical Considerations

Introduction

Every business organizations are subject to follow the legal and ethical factors. This report is concerned
with identifying major taxation system levied by the UK on individual, firms and so on. Being an
organization and individual, they are subjected to the pay taxes according to law enforced by the
government. UK as progressive tax system has adopted varied taxation system on people and firms
which depends upon income and profits. This report initially discusses about the basic concept of tax
and its importance to organization and individual. Various taxation systems are also analyzed on the
national level (UK) and also consider taxation legislation that has given implication has mentioned.
Various ethical and legal factors also identified that has significant impact on the organization and
impact of such factors to organization is also evaluated during the preparation of report. Various roles
and responsibilities of business organizations as collectors of tax is also mentioned and various
compliance requirements has explained in context of recording entire transaction and reporting income
for taxation.

Main Body

Concept of tax and importance of tax system to organization and governments

Starting up any business or company is subject to following various legal and ethical consideration.
Organization has to maintain their own ethics and culture followed by the society’s culture and norms.
These factors has huge impact on the company success and gaining long term competitive advantage.
When business firm is conducted by the any particular person then person has to pay certain amount of
money to related department of government. From small business to big one, it is vital for them to
follow the taxation system. Tax is described as basic responsibilities of business organization in which
they have to pay specific finance. Tax is financial responsibility for individual and organization which is
imposed by government which aims to main source of collection for the different purpose. Since, tax is
main sources of revenue for the government, such collected money is utilized later for the beneficiary
and welfare of society’s people.

Tax collection added advantage for both individual and business entity because of various reason.
Tax is collected by government because products and services is being consumed by people against
which tax is levied. So, tax should be regularly and properly paid to government by every concerned
people and entity so that government can utilize those fund for good purpose. Government uses those
money for different usage like establishment of infrastructure, investment in health care, proper
governance. People are being facilitated through the construction and maintenance of roads, sanitation
facility, construction of bridge, scientific research and so on. Thus, it is obvious that tax has significant
impact on the both individual, business entity as well as government. Government uses those collected
money as tax for different purpose for the betterment of educational sectors, health sectors maintaining
governance. Since, proper infrastructure is established in country then it attract the various business
entities as they can produce and operate their business at low production cost. Proper establishment of
various facilities like roads, bridges, availability of electricity is vital for the better and effective operation
of business.
Taxation system and legislation along with its implication on national level

Tax system is different from one country to another country as some may impose more and some may
less. Individual, business firm are levied certain financial responsibilities and government collect finance
from different sources. Generally, country levied more tax on the consumption of luxurious products
while they imposed less on such products which are consumed less. There are typically two types of tax
e.g. direct and indirect taxes. Direct taxes are such taxes which are imposed by the government on
products such as wealth profit, income on individual’s incomes or profits. On the other hand, indirect
taxes is important sources for any nation as these are the main sources of tax on products and burden of
tax which can be divided between buyer and seller. Other some nature and types of tax system mostly
used by various countries is progressive, proportional and regressive tax system.

Progressive tax system is generally implied by the developed nations where higher income individual
have to pay higher proportion of tax when an income increases. Main aim of these sorts of tax system is
to reduce the inequality existed in community. Similarly, UK tax system is also considered as progressive
system because it takes huge percentage of income from higher earners. From 2012, tax policy has
changed significantly as minimum threshold is over £8,100 which means people having low income so
they have to pay zero tax. Thus,1 people having varied income level are levied different percentage of
tax on their income. People earning over £34,000 have to pay marginal tax rate of 40 % and people
earning over £15,000 are liable to pay marginal tax rate of 45%. However, having progressive tax system
in their system, they have also adopted more regressive in some aspect as well. VAT rate is charged 20%
so people with low income have higher marginal propensity to consume. In fact, VAT that is being paid
to the government is higher percentage of their entire income. Corporate tax is levied on the
international revenue on the residents of UK companies, public corporations and unincorporated
companies. In 2016, corporation tax is imposed at the rate of 20 % which is because fall in 19 %in 2017-
18 and 17% by 2020-21.

Ethical and Legal limitations and their impact on organizations

Business organization should be very aware of ethical and legal factors because both have equal
importance and impact. Ethical and legal aspects are different part in the organization. Ethical aspects is
philosophy that mentioned the questions of morality such as good or bad, right or wrong, virtue and vice
and so on. Law on the other hand, is systems that set up rules and generally enforces through set of
institutions. Legal aspects in the business are considered to be compulsory whereas ethical factors of
organization are not mandatory but considered as voluntary guidelines. Ethics are considered to be
what is accepted and expected by the people and consumer from the organization. So, organization are
should address both legal and ethical requirements to be successful one. Thus, it can be said that ethics
is more focused on the emotions and law is not, so ethics guide how good they can obey the law.

Every business organization is compulsorily followed and addressed the legal requirements set by
government but ethics is something different phenomenon. Business firms to gain the sustainable
competitive advantage, both ethical and legal aspects plays important roles. 2Code of ethics is referred
by the ethics as it aims to be main guide and reference for users in help of daily decision making. Thus,
ethics and code of conduct is supposed to clarify an company’s vision, mission, values and principles
1
https://www.ifs.org.uk/bns/bn09.pdf
2
https://www.humanrights.gov.au/sites/default/files/VET%20Disability%20Unit%20Trainers%20Manual%20-
%20Topic%208.pdf
while aligning them with the standard of organizational conduct. 3 Every organizations are subjected
towards the compliance of various laws concerned with their activities and operations. From their
starting point and till the closure of the business, they are surrounded with the compliance of law. While
ethical factors are not mandatory still they posse’s big threat to the organization so both needed to be
properly reviewed. Generally, business organization are subjected to follow the law on the factors like
advertising, finance, intellectual property, privacy law along with other income tax and corporate tax as
well. Similarly, in these sectors, business entity should be aware while conducting their business by
identifying what is general code of conducts that determine what is accepted and what is not.
Sometimes business follow the legal aspects but ignored the ethical consideration that causes to create
the bad company image.

Role of organization as collectors of Tax

Tax collector is known as independent constitutional bodies and officers who is elected for the countries
of residence by the people and taxpayers. Talking about the tax payments in UK there are three levels
namely central government, devolved government and local government. In this respect, central
government main revenue sources come from income tax, national insurance contributions, VAT,
corporation tax and many other. National insurance in UK is bit progressive as it took a percentage of
one’s income. National insurance is considered to be 50% of total tax revenue in UK as upper limits has
been set so one don’t have to pay tax on income above such. VAT on the other hand is proportional tax
paid on the sales of products within UK. Some of the products are zero rated and exempt. Business
entity where sales of non-exempt products and services exceed the VAT registration threshold should
pay VAT.

NIC is act that is paid on earning which payment entitles people to certain social security benefits.
HM revenue and customs is main regulator as non-ministerial department in UK whose main role is to
collect taxes. HMRC is the department that is responsible for the collection of various taxes like income
tax, corporation tax, VAT, NIC, excise duty and various other taxes. Every organization and entity is
subject to the pay their liable taxes to the government. As a tax collector different duties and
responsibilities is given that aim to collect money owed to the department of government by individuals
or business. Tax collectors main goal is to supervise and check to the people who struggled to pay as
they communicate with these people to work toward the solution. Field audits, assessing financial
information, keeping recording of each case is main responsibility of organization responsible for tax
collection. In most of the organization in UK agencies that hire tax collectors need job candidates to
have certain qualification. Every tax collector these days uses automatic and electronic data processing
machinery while conducting their duty.

Compliance requirements in terms of recording and reporting

Every business transaction which is being operated should be properly analyzed and recorded. All the
income and expenses of company are important part of organization that should be properly recorded.
Business maintaining such records and reporting income is essential as it aims to determine the exact
profit of the firm and determine taxable amount to the government. Such recording and reporting is
also helpful to the investor point of view. Investors look or analyze on different financial statement of
3
https://www.cengage.com/resource_uploads/downloads/1111138214_259148.pdf
business organization and according to which money is invested into project. Proper record keeping of
every transaction is important that has huge impact on the organization as well as government also. If
proper recording of every income and expenses along with other important factors are found to be on
their list then exact detailed can be incurred. This sort of recording helps to gain exact profit earned
during the accounting period by the firm so proper and exact amount of profit is shared and bear if loss.

Proper recording and reporting in business activities aims to facilitate business in various aspects
such as monitor and analyze progress of business as a result proper and true result of company is
acquired. It further helps to project business tax liability and prepare accurate financial statements.
Many businesses suffering to identify the source of receipts so it can help to find out such things.
Various deductable expenses and cost of the company can be tracked and determine and it also support
items reported on tax returns.

Conclusion

Tax is referred as basic responsibilities of business organization in which they have to pay specific
finance. Tax is financial responsibility for individual and organization which is imposed by government
which aims to main source of collection for the different purpose. Government uses that money for
different usage like establishment of infrastructure, investment in health care, proper governance.
People are being facilitated through the construction and maintenance of roads, sanitation facility,
construction of bridge, scientific research and so on. UK tax system is also considered as progressive
system because it takes huge percentage of income from higher earners. From 2012, tax policy has
changed significantly as minimum threshold is over £8,100 which means people having low income so
they have to pay zero tax. Law is systems that set up rules and generally enforces through set of
institutions. Legal aspects in the business are considered to be compulsory whereas ethical factors of
organization are not mandatory but considered as voluntary guidelines. Ethics are considered to be
what is accepted and expected by the people and consumer from the organization. Every organization is
subjected towards the compliance of various laws concerned with their activities and operations. Ethical
factors are not mandatory still they posse’s big threat to the organization so both needed to be properly
reviewed. Tax payments in UK, there are three levels namely central government, devolved government
and local government. Tax collectors main goal is to supervise and check to the people who struggled to
pay as they communicate with these people to work toward the solution. Proper recording and
reporting in business activities aims to facilitate business in various aspects such as monitor and analyze
progress of business as a result proper and true result of company is acquired. It further helps to project
business tax liability and prepare accurate financial statements.