The present study is based on understanding the difference between the employment and self-employment. The study would critically carry out the discussion of differentiating between the employment and self-employment. Furthermore, a critical evaluation of the tax avoidance and tax evasion would be studied along with their implications on the clients and government. An assessment of purpose and forms of taxation practiced in UK would also be considered with tax planning issues for the government and the clients.
The difference between employment and self-employment is considered very significant. An individual who is self-employed usually carry out their works for themselves as the owner of business, outworker or as the self-regulating contractor in a new company (Fondeville et al. 2015). Earnings is generally earned from the commercial works or the freelancing, as a substitute of the salary or the repayment of commission. According to the internal income service a person is regarded as the self-employed for the purpose of taxation. Self-employed represents the person that execute the trading activities or the commercial occupations as the sole owner or the self-regulating contractor.
The self-employed is regarded as the member of the partnership that executes the trade or business. Under the self-employed an individual in business represents the person that is representing themselves (Premand et al. 2016). Person that are self-employed does not have the steady income however a self-employed person should carefully manage the bills and expenditure. Under the self-employed, the person is required to pay their taxes on their own to the Internal Revenue Service and to the state department of tax. Furthermore, a self-employed person is required to pay the income taxes, self-employed workers are also liable for paying the social security and Medicare taxation in respect to the Self-Employment Contributions Act.
Employment on the other hand refers to when an individual is employed by the company the person is considered to be an employee. Employees on the other hand refers to the employment under the firm’s payroll and the establishment withholding the central and state-run taxes, communal, security and Medicare.
Workers are offered with the employment and employees reimbursement insurance. The employees under the employment are provided with the self-benefit packages that comprises of the things such as paid sick leave, health insurance and vacation or the retirement participation plan (Poschke 2017). The independent contractors are not considered for employee benefits despite that are mandated by the law such as redundancy and employee’s reimbursement since they are not employed in the business establishment. Just like the typical employee, the independent contractors usually work in reduced amount on the regular instances. They only work when it is required and are generally billed based on the hour or for each of the project depending upon the contract terms.
From the perspective of the employing, the employees cost are significantly more for the employers than the independent contractors due to the requirement of the communal security medical state and redundancy levies totalling the dependable salary or the wages-based on the labour. On the contrary the self-employed persons and the independent contractors may be capable of purchasing the health insurance and other assistances with the assistance of Affordable Health Care Act or with the assistance of organizations such as the chamber of commerce that offer welfares to the self-employed personnel and the small business (Burchell et al. 2015). The self-employment income undertakes the deductions for the health insurance expenditure that is incurred for themselves and their dependents. Other self-employed deductions with respect to tax deductions comprises of the cost related to home, office and fax expenditure are available to the self-employed while employment travels, car expenditure IRA contributions forms the part of the employment.
While there are numerous positives to be considered as the self-employed or employment as they can shorten or completely avoid commutation by placing focusing on the objectives that mattered the most. While person that are employed usually get paid for the holidays or sick day and their earnings might be short-term whey they are starting out.
The below listed are the differences between the tax avoidance and tax evasion:
The implications of tax avoidance and tax evasion on government is that it reduces the tax revenue for the government (Dharmapala 2017). If it becomes very widespread then it may create an impact on the capability of the government to recompense its expenditure that may consist of the communal amenities, substructure and the military. The implications on the clients for tax evasion and avoidance is that if found guilty of doing such act then it may result in either penalty or imprisonment or both.
Different forms of taxation in UK are levied in the civic or any other forms of lawful unit that forms the foundation of UK central government. They are defined below;
Income Taxes: Majority of the income for the government comes from the income tax. Every one obtains the allowance of income tax and incomes till the sum which is beyond the scope of taxation (Yu 2015). During the year 2007-08 the sum of the tax for duty allowance stands 5,225 pounds for the people that are below the age of 65 years.
Capital gains tax: Capital gains represents another form of income tax. Capital gains represents the type of gain that is attained by vending and swapping the investment assets namely bonds, stocks etc. Usually capital gains tax is applied on the selling price of the asset. Nevertheless, there are some costs that are considered admissible for computing the chargeable profits.
Corporation Tax: People that are residing in UK and having domicile in UK are required to pay the corporation tax for the profits (Miller and Oats 2016). For the corporations, that are located in UK or having their management control in UK then they would be considered as the resident company of UK. Hence, these would be considered under the purview of the corporation tax.
Value Added Tax: VAT is another form of tax that is applicable on the trade of the assessable goods and services that are made in the country. VAT is applicable on the trade of the assessable services and products that is made in the country. UK is regarded as the third highest source of income of UK government. It is applied on the import and export goods that arrives from and goes out of the European Union as well.
Excise Duty: Excise duty is applied on the distilled products, minerals, oils and tobacco, motor vehicles.
Motor Tax: Motor tax usually comprises of the automobile excise duty and duty on fuel. The majority of the other taxes such as numerous forms of statutory fees, congestion charges etc are included into the motor tax.
Stamp Duty: Stamp duty is another form of taxation that is levied on certain products and transmission of shares (James 2016). The applicable rate of stamp duty on shares stands 0.5%. Stamp duty is applied on the dealings but the stamp duty land tax is computed on the basis of transaction of land.
Companies and private clients have stated that in the recent years the environment has changed the attitude of the wealthy clients towards the taxation. Any forms of legal means should be considered and tax planning forms the key driver of the structured tax affair (Ernst, Richter and Riedel 2014). However, issues have arisen that clients are seeking the professional advice to make sure that they are compliant. There is more consensus in political rhetoric revolving the issue. Clients and companies across the political spectrum have pounced on the tax avoidance contributing to the issues of tax planning.
In UK there is no solitary basis of taxation law. The basic is stated in the Acts of the Parliament but it is left to the courts to provide their interpretation of the Acts and offer much amount of details to the taxation system of UK (Clist 2016). In addition to this the HMRC issues different variety of statements, notices and leaflets in order to provide explanation of how the rule is applied in actual practice. The statements does not have any legal backing but they offer explanation to the interpretation of the tax experts of the law and would be followed except it is positively challenged in the court of law. The different sources of tax laws are the direct and indirect taxes in UK.
Direct Taxes: Direct taxes are imposed on the revenue, profits or gains or either it is deducted at source or paid directly to the authorities of taxation. The main source of direct taxes that are paid by the individuals to the tax authorities are the capital gains tax and the inheritance tax (Brown 2017). The main source of direct taxes that are paid by the company are the corporation tax.
Indirect Taxes: Indirect taxes are levied on the expenditure. It is applicable when the taxpayer purchases an item and are paid to the seller as the portion of the purchase value of the element. It is duty of the seller to pass the taxes on the duty establishments. The indirect source of taxes comprise of the value added taxes, stamp duty, custom duty and excise duties.
The objective of professional and ethical framework in which accountants operates represents the responsibility of the accounts in the public interest. The accountability of the professional accountant is not wholly to encounter the requirements of the separate clients or the employer (Auerbach and Hassett 2015). They are required to act in the public interest by observing and complying with the ethical requirement of the code of ethics for professional accountants. The professional accountant possess the duty of continuity in maintaining the specialized information and skills at the required level to make sure that the client or the employer gets the knowledgeable level of expert services based on the present development in the practices, legislature and techniques.
A professional accountant is required to act diligently and in compliance with the applicable technical and professional standards at the time of providing professional services (Mellon 2016). The professional accountant is required to respect the discretion of the information that is obtained from the business and professional relationship and must not disclose the any such information to the third parties without the proper and specific authorities unless there is professional or lawful right of disclosing the information. The professional accountant must adhere with the relevant laws and regulations and must avoid the any sorts of actions that discredits their profession.
Conclusion
On a conclusive note, the study states that the difference between employment and self-employment is considered very significant. A self-employed usually works for themselves while in employment a person works in the capacity of employee. On the other hand, tax avoidance is regarded as immoral activity that bends the law and does not causes any damage to it. Whereas tax evasion is illegal and objectionable both in terms of law and morality. The purpose of taxation in UK is to generate major source of revenue for the government in UK. Similarly, the indirect and direct taxes forms the sources of taxation and the professional accountant adhere with the relevant laws and regulations to avoid discrediting their reputation.
References
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Burchell, B., Coutts, A., Hall, E. and Pye, N., 2015. Self-employment programmes for young people: A review of the context, policies and evidence (No. 994898993402676). International Labour Organization.
Clist, P., 2016. Foreign aid and domestic taxation: Multiple sources, one conclusion. Development Policy Review, 34(3), pp.365-383.
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Ernst, C., Richter, K. and Riedel, N., 2014. Corporate taxation and the quality of research and development. International Tax and Public Finance, 21(4), pp.694-719.
Fondeville, N., Ozdemir, E., Lelkes, O., Ward, T. and Zolyomi, E., 2015. Recent changes in self-employment and entrepreneurship across the EU. Research note 6. DG EMPL, European Commission.
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