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UK Taxation: A Critical Review - Essay Example

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There is much to understand and discuss in regards to the present structure of the UK tax system, and all of the elements which are intertwined in the system are of incredible importance. In order to truly understand the UK tax system, and in to come to a clearer and more knowledgeable understanding on this subject matter, the following questions must be addressed:
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UK Taxation: A Critical Review UK Taxation: A Critical Review There is much to understand and discuss in regards to the present structure of the UK tax system, and all of the elements which are intertwined in the system are of incredible importance. In order to truly understand the UK tax system, and in to come to a clearer and more knowledgeable understanding on this subject matter, the following questions must be addressed:
1. Is it true that the present structure of the UK tax system means that businesses have everything to gain, and nothing to lose from engaging staff only via intermediary companies
2. If staff are engaged as employees, will careful use of ITEPA 2003 and especially 'Share Schemes' instead allow businesses to create flexible reward packages, which will better meet the business goals of (i) long term cost minimization and (ii) ensuring a stable and knowledgeable workforce
3. What are some conclusions that can be drawn from this review
The aim of this paper is to discuss these issues, as well as the other related key elements that are involved, in order to come to a more understanding point of view on this subject matter. This is what will be dissertated in the following.
Is it True That the Present Structure of the UK Tax System Means That Businesses Have Everything to Gain, and Nothing to Lose From Engaging Staff Only via Intermediary Companies
The UK government's objectives for the business tax system are that it should "promote productivity and growth by supporting businesses competitiveness, while ensuring business contributes its fair share to the funding of public services." (Wrathmell, n.d.). Although the existing incentives for growth have had at least some success in the encouraging of small companies to invest their profits, the benefits of existing incentives are being eroded by an increasing number of new incorporations, who do not have growth ambitions, and yet are still able to take advantage of these incentives. What this means is that in regards to the present structure of the UK tax system, although it perhaps appears at first that businesses have everything to gain from engaging their staff only via intermediary companies, there is still some left to lose.
Intermediary companies act as a mediator or an agent between two or more companies, and the use of these intermediary companies can have a significantly positive effect on the companies involved. There is no substitute to a great team in business development, alliances, research and commercialisation, "But what if your team were able - every day - to physically sit inside the confidential planning and strategy meetings of many other companies, both potential partners and organizations you might not think to look inside for connections" (Innovation XChange Network, 2006). Intermediaries are useful when exploring potential customers or connections with third parties; from here they will approach the third party and indicate that the specified company is interested in them, as well as find out and hitherto deliver any relevant and essential information.
However the downside to companies engaging staff only via intermediary companies is that there is less control over the sales and marketing process, and "in the worst case scenario, may simply be training up future competitors." (MMS, n.d.). The relying on intermediaries in business, especially if abroad, can result in significant risks. Therefore, although the present structure of the UK tax system is almost impeccable in regards to this issue, there are still significant downfalls and risks which cannot be fully avoided.
If Staff are Engaged as Employees, Will Careful use of ITEPA 2003 and Especially 'Share Schemes' Instead Allow Businesses to Create Flexible Reward Packages, Which Will Better Meet the Business Goals of (i) Long Term Cost Minimization and (ii) Ensuring a Stable and Knowledgeable Work Force
From a review of the relevant literature and statistics, it is clear to see that if staff are engaged as employees, there will certainly be more and better opportunity to create such things as flexible reward packages, which will better meet the business goals of not only long term cost minimization, but of the ensuring a stable and knowledgeable work force as well. Income Tax (Earnings and Pension) Act 2003 (ITEPA 2003) deals with the matters of charging income tax on such things as employment income, pension income, and social security income. As well the Act confers certain reliefs in respect of liabilities of former employees, allows deductions to be made from such income in respect of payroll giving, and "provides for the assessment, collection and recovery of income tax in respect of employment pension or social security income that is PAYE income." (OPSI, 2003).
What are Some Conclusions That can be Drawn From This Review
The UK tax system has developed over hundreds of years, and continues to evolve daily. From this review we can see that there are both benefits and negative impacts which can occur due to the structure of the UK tax system, although generally these issues can be primary one-sided. Although it seems to be quite contradictive to say that businesses have 'everything to gain and nothing to lose' from engaging staff via intermediary companies, for the most part we can critically assess that there are more benefits than there are downfalls. With this, we can come to the conclusion that intermediary companies are relevant and of great significance, and as they give these businesses basically the benefit of the doubt, they are an assured part of the system. We can also draw from this review that if staff are engaged as employees, both long term cost minimization and a stable and knowledgeable workforce will be created.
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