UK Tax System Structure

• Topic 01

  UK Tax System Structure

  62 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. Which of the following correctly sets out the order of steps to calculate an individual's taxable income for income tax purposes?

   • A
     Total income minus the Personal Allowance equals net income; net income minus reliefs equals taxable income
   • B
     Add all income sources to get total income; deduct reliefs (pension contributions, Gift Aid) to get net income; deduct the Personal Allowance to get taxable income
     Correct answer
   • C
     Start with employment income; add non-savings income; apply reliefs and allowances in any order to arrive at taxable income
   • D
     Deduct the Personal Allowance from total income first, then deduct pension contributions and Gift Aid to get taxable income
   Explanation

   The correct statutory order under ITA 2007 is: (1) Total income — all sources of income combined; (2) Net income — total income minus qualifying reliefs (pension contributions under relief at source, grossed-up Gift Aid donations, qualifying loan interest); (3) Taxable income — net income minus the Personal Allowance (and other allowances such as blind person's allowance). Deducting the Personal Allowance before reliefs, or mixing NIC/PAYE into the income tax computation, are common errors.

2. What is the deadline for filing a self-assessment tax return on paper?

   • A
     30 September following the end of the tax year
   • B
     31 January following the end of the tax year
   • C
     5 April following the end of the tax year
   • D
     31 October following the end of the tax year
     Correct answer
   Explanation

   The paper self-assessment return deadline is 31 October following the end of the tax year. For the 2025/26 tax year, this is 31 October 2026. This is three months earlier than the online filing deadline of 31 January 2027. Taxpayers who choose to file a paper return must do so by 31 October or face an immediate £100 late filing penalty. The earlier deadline exists because HMRC needs additional time to process paper returns before the balancing payment deadline of 31 January.

3. Which government body administers income tax, CGT, and IHT in the UK?

   • A
     The Bank of England
   • B
     HM Treasury
   • C
     The Prudential Regulation Authority (PRA)
   • D
     His Majesty's Revenue and Customs (HMRC)
     Correct answer
   Explanation

   HMRC (His Majesty's Revenue and Customs) is the UK government department responsible for administering and collecting taxes, including income tax, Capital Gains Tax, Inheritance Tax, National Insurance contributions, VAT, Corporation Tax, and stamp taxes. HM Treasury is responsible for economic and financial policy, including setting tax rates through the Budget, but it does not administer or collect taxes. The FCA and PRA regulate financial services firms.