The UK tax system

1 Taxes and taxable sources

In this TX lecture: The tax-policy discussion, tax-adviser ethics, money-laundering guidance and tax-avoidance/evasion discussion are not examined in FTX. References to TX exam sections do not describe the FTX exam.

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These FTX-UK notes use Finance Act 2025 and the 2025/26 tax year for June 2026, December 2026 and June 2027. The exam lasts two hours: Section A has 15 two-mark objective questions; Section B has eight compulsory questions worth 70 marks, including two 15-mark questions on income tax and corporation tax. Use the FTX rates and allowances supplied in the exam and practise the computer interface on ACCA’s practice platform.

The UK taxes defined sources of income and specified capital transactions. Income tax legislation identifies taxable sources rather than giving one general definition of income.

A direct tax is imposed on the taxpayer’s income, profits or gains. An indirect tax is collected through a supplier; VAT is paid by the customer as part of the price. Inheritance tax is another capital tax, but its computation is outside this course.

2 Sources of tax law

2.1 Tax legislation/statutes

Adherence is mandatory. It is updated every year by the annual Finance Act.

Statutory instruments are secondary legislation made under powers granted by an Act of Parliament. They can contain binding detailed tax rules; they are not merely explanatory notes or HMRC guidance.

2.2 Case law

This refers to decisions made in tax cases. The rulings in the courts are binding and so provide guidance on the interpretation of tax legislation.

2.3 HMRC guidance

This is issued due to the complexity of the legislation and include the following:

Statements of practice:

Provide HMRC interpretation of tax law and often provide clarification or detail of how it should be applied.

Extra-statutory concessions:

Extra-statutory concessions are published HMRC concessions that relax the strict application of legislation where it would otherwise cause hardship or an anomaly. They apply to taxpayers who meet their stated conditions.

Internal guidance manuals:

HMRC working manuals produced for their staff, but they are also available publicly.

HMRC website, leaflets and booklets:

Aimed at the general public and provide an explanation of various tax issues in non-technical language.

Detailed technical guidance:

HMRC issue Notices and Guidance Notes, aimed at tax agents and advisers, to explain tax issues in more technical detail than is normally required for the general public.

HMRC Briefs provide detailed technical guidance on a specific tax issue that has arisen during the year.

3 Structure of the UK tax system

3.1 HM Revenue and Customs (HMRC)

The purpose of HMRC is to make sure funds are available for public services and to help families and individuals with targeted financial support.

• HMRC administers and collects taxes, provides guidance and checks returns. The Treasury determines tax policy; Parliament enacts tax legislation.

• Usually appeal in writing within 30 days of the decision, stating the decision and the grounds. First try to resolve the dispute with HMRC; an independent HMRC review can be requested or accepted.

• If unresolved, notify the independent First-tier Tribunal within the relevant time limit, normally 30 days after the review conclusion. The First-tier Tribunal hears the facts and law.

• A further appeal to the Upper Tribunal is on a point of law and requires permission. The Upper Tribunal is not simply a second opportunity to argue the same facts.