Differences Between Employment And Self Employment

Introduction

There are people who prefer to be self-employed while others consider being employed to be a better option due to circumstances such as the level of income, the risk involvement and the independence provided by each option. Most people consider self-employment which involves getting contracts for services to be an unconstrained way as compared to working in the modern day employment setup which is also known as a contract of service. Notably, an employed person is usually under much subordination but in return, he or she is able to have more benefits. An employed person have little to worry about the risk involved in the business and is bound to receive benefits such as life insurance, health insurance, service pay and annual leave (Egger et al. 2015). Additionally, an employed person can take a leave in the workplace without things going wrong. One can go about other duties such as family duties and education without fearing that the business will collapse without them.

On the other hand, self-employment is preferred because one is able to control the working environment to fit his or her expectations. A self-employed person is able to develop and expand the business as he or she is in control of everything happening in the business. Additionally, unlike the employed people being self-employed ensures that one is able to determine the direction of the business through their actions. When a business increases its profits, a self-employed person will be able to enjoy the profits but an employed person will barely notice the difference in his or her payslip. Additionally, a self-employed person can easily switch to another line of service if he or she feels uncomfortable with his line of business. However, there are many responsibilities that come with owning one's business. Self-employed people have to work extra hours to ensure that the business is going as planned. Moreover, they are involved with more risks especially financial. Additionally, a self-employed person does not have a secure future as the business can fluctuate. That said, it is evident that there are trade-offs for engaging in either employment or being self-employed.

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It is important to note that self-employment has been considered to be the best option for people who cannot successfully supply their skills in the market due to issues such as not having English as the first language. Luckily many tax rules have been favourable to the self-employed people who do not have any employees (Egger et al. 2015). There are several tax advantages experienced by self-employed people and this includes a more generous tax treatment. They are allowed to account for labour income as income from capital hence paying lower taxes. However, in some instances being employed ions better because the person does not have to deal with the complicated tax system as the only required taxes are PAYE and are deducted by the company that they work for. Additionally, there are no complications on how to present the business to the tax authorities hence having an increased peace of mind in comparison to the self-employed individuals.

Differences between Tax Avoidance and Tax Evasion and the Implications to the Client and the Government

The main difference between tax avoidance and tax evasion is the legality of the two. Notably, tax avoidance is considered to be legal because it involves reducing the current and future tax liabilities by exploiting the current tax system legally. Many cases, there are artificial transactions that are fixed in order to create a tax advantage. Some examples of tax avoidance include creating a company in a tax haven, incorporating tax deductions and changing the business structure. The government argues that there is only a small population of people involved in tax avoidance and through more tight rules, it will be able to block all loopholes in the tax systems in order to reduce tax avoidance. There are several advantages of tax avoidance to the client. The most common one is that a person gets a lesser tax liability and this increases the profitability of the business. Additionally, depending on the location of the business, one might be eligible for government aid if a business reportedly earns below some amount. However, tax avoidance tempts the people engaging in it to engage in tax evasion and this can lead to many legal complications. Additionally, in tax avoidance many people tend to register their companies under different names such as their wives and this can lead to further loss of income in case they are divorced. To the government, tax avoidance leads to lower income hence a strained budget for the people. Given that most people who engage in tax avoidance are rich, such incidences makes the government to be portrayed in a negative light hence losing the faith of taxpayers and being views as biased.

On the other hand, tax evasion is escaping paying taxes illegally. Tax evaders usually, misrepresents the true state of their business and employment status to the tax authorities. Some of the other people fail to fill in their returns, fail to report their full income and hide their taxable assets. It is important to note that in the UK, tax avoidance is a criminal offence that is punishable but a fine or a prison term. There are no benefits of tax evasion because the government is stricter and one is likely to be exposed and face the consequences which include prison terms (Lyons 2018). When considering a prison term, it is more expensive economical than paying taxes. Additionally, tax evasion is expensive for the company as the government will be unable to provide the services needed by the people due to tax evasion by more people. That said, tax evasion is adverse to the country as it reduces the amount of money available for development (Lyons 2018). To the government, tax evasion reduces the number of funds available to promote development in the country. However, it can be a positive thing as it helps the government analyses reasons that lead to tax evasion in the country such as high tax rates and by addressing such issues it is possible to reduce tax avoidance and evasion in the country.

Purposes and Types of Taxation in the UK

The main purpose of taxation is for the government to earn revenue and to control the activities that are people engaged in across the country. Through taxation, the government is able to control the activities taking place and if the activity is considered to be harmful to the society, the government is able to take action (Liakhouski and Melnikava 2016). It is the role of the government to provide social services to all people across the country equally and to promote the development of infrastructure across the country.

One type of taxes are income taxes. This is the main form of income by the government as each employed person in the country should contribute income tax to the government. Capital gains tax is a form of income tax and is gained from selling and exchanging capital assets such as stocks and bonds. In many cases, capital gain taxes are charged on the selling price of an asset but there can be other costs that can be calculated depending on the chargeable profits.

Another type of tax is corporation tax which is administered on people who own businesses. Corporation tax is different for companies depending on their locations and if they are international companies. If the company is situated or managed from the UK, it is treated as a resident of the UK even when considering the corporation tax (Liakhouski and Melnikava 2016). Notably, for the middle-level companies, there are several tax refunds allowed such as goodwill, intellectual property and the cost of intangible assets.

Value added tax is another type of tax in the UK and it is applied on taxable services and goods that are manufactured in the country. Notably, it is among the highest sources of income for the government and it applied to both the imported and exported products. The standard rate applied to the value added tax is sally 17.5% but this varies depending on the products. Some of the products are completely exempted from value-added tax completely.

Excise duty is another type of tax and it is used on things such as mineral oils, tobacco, and alcoholic products. Stamp duty is another form of tax and is usually imposed on given products and in the transfer of shares. It usually has a low rate of 0.5% and it is not imposed on all transactions. Lastly, inheritance tax is a type of tax that is applied for the people who will be inheriting property either after death or after a long time transfer rate.

The Different Sources of the Tax Law, the Purpose of the Professional and Ethical

There are many sources of UK tax laws and while the main rules are provided by the Acts of parliament, the court is usually left to interpret the acts and to provide details for the tax system (Procter and Radnor 2014). Her Majesty's Revenue and Customs (HRMC) issues various statements that intend to explain how the law should be implemented in practice (Procter and Radnor 2014). One source of the tax law is the Statute Law that is provided by the Acts of parliament. Another source is the Tax Law Rewrite project which aims to rewrite the UK tax registration in a way that it will become easier to use and more clearly too all people. Another source of the tax law is the European Union law Membership especially on dealings between member countries. It is likely that the EU law might have an increased impact over time. The main focus of the EU law is in the VAT (Liakhouski and Melnikava 2016). Case Law is another source of tax laws and they usually arrive in courts after the interpretation of the tax acts. Statements by the tax authorities are also used as sources of tax laws, the statements are mainly from HRMC and through the different interpretation of tax legislation, there are clarifications made that forms tax laws in the country. Such statements include Statements of practice, Extra-Statutory Concessions, press releases, internal guidance manuals amongst others.

It is important to note that accountants play an important role in taxation. They are used by organizations to calculate their taxable income and therefore it is important to ensure that they work ethically. One way that shows the ethical contribution of the accountants is their integrity. Through integrity, accountants are honest and candid with their client's financial information. It is important that the accountants should restrict themselves from personal gain and be having an advantage by using the client's information (Procter and Radnor 2014). Additionally, ethically, accountants should not be helping companies with tax avoidance or evasion as this might lead to legal consequences for them and for the company.

It is important for the accountants to act independently at all times. They should be free from conflicts of interests in companies and their own personal accounts. If they fail to be objective, it is likely that they wi9ll be biased in their reports hence denying justice to a given group of people in the company. Some of the services offered by accountants include auditing, tax calculations and advisory services. In case an accountant fails to be objective and independent their performances in such areas. An accountant can be manipulated by owners of the company it assists them in tax avoidance but is he or she works independently, such situations can be avoided (Procter and Radnor 2014). Lastly, an accountant acting ethically is supposed to follow the generally accepted accounting principles. Additionally, they should be competent and have a good understanding of financial information so that they can ensure that they do not place the companies in jeopardy. This way, a company is able to manage its finances well and avoid being at loggerheads with the government due to bad tax practices. Dig deeper into Tax Law with our selection of articles.

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References List

  • Egger, P., Merlo, V., Ruf, M. and Wamser, G., 2015. Consequences of the New UK Tax Exemption System: Evidence from Micro‐level Data. The Economic Journal, 125(589), pp.1764-1789.
  • Liakhouski, U. and Melnikava, A., 2016. Implementation of the PPP Programmes in the Sphere of the Foreign Economic Activity in the United Kingdom.
  • Lyons, T., 2018. UK Customs Penalties and EU Harmonization. Global Trade and Customs Journal, 13(7), pp.347-353.
  • Procter, S. and Radnor, Z., 2014. Teamworking under Lean in UK public services: lean teams and team targets in Her Majesty's Revenue & Customs (HMRC). The International Journal of Human Resource Management, 25(21), pp.2978-2995.

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