PRINCIPLES OF TAXATION FOR BUSINESS AND
INVESTMENT PLANNING 2026 ACTUAL TEST
PAPER QUESTIONS SOLUTIONS VERIFIED
COMPLETE STUDY PACKAGE
◉ relief at source vs net pay arrangement for pensions
Answer: releif at source = peronal pension
net pay = company
◉ additional modern principles of taxation
Answer: 1. simplicity
2. flexibility
3 .social/environmental concerns (act in tension with fiscal
neutrality)
◉ what is equitable?
Answer: fair in its impact. tax should be proportionate to the
taxpayers ability to pay (horizontal vs vertical equity debate)
◉ What is certainty?
,Answer: clarity about how much is owed and when --> simple to
compute
◉ what is convenience?
Answer: easy for taxpayers to pay
- tax deducted at source like PAYE is easy
- direct assesment like having to file a self assesment tax return is
less easy for tax payer (but then easier for employer)
◉ what is efficiency
Answer: 1. economic - there should be fiscal neutrality (taxes
shouldn't impact economic decision-making)
2. Administrative - should generate more revenue than it costs to
administer
◉ horizontal vs vertical equity
Answer: 1. horizontal - similar positions are taxed in similar ways --
> but how do we judge this?
2. vertical - those in need pay less (progressive tax)
◉ what is the benefit principle?
Answer: when people are taxed proportionally to the amount of
benefits they recieve
,- TV license, council tax
◉ direct vs indirect tax
Answer: 1. direct - tailored to the indivuals circumstances (income
tax)
2. indirect tax - affects everyone equally (VAT)
◉ how does MTR vs ATR differ in flat vs progressive tax systems
Answer: 1. flat - MTR=ATR
2 progressive - MTR>ATR
◉ what is flexibility?
Answer: the tax system should be able to respons to changing
economic conditions (automatic stablisers)
- take more money out of growing economy to keep growth at
manageable level
- take less money out of shrinking ecconomy
- income + corporation taxes are flexible
◉ how does income tax, VAT and NIC score around equity?
Answer: income tax - good
VAT - poor (regressive)
, NIC - mixed
◉ how does income tax and VAT score around certainity?
Answer: income tax - good (PAYE)
VAT - good
◉ how does income tax, self-assessment and stamp duty score
around convenience?
Answer: income tax - very good (PAYE)
self assesment - mixed with stamp duty - good as on purchase
◉ administritve costs vs complience costs
Answer: administrative - bourne by HMRC
compliance - bourne by taxpayers
◉ what are the objectives of tax
Answer: 1. Managing the economy (employment levels, inflation,
business activity etc)
2. regulation
3. developing society (providing social welfare and helath services)
4.providing public goods
INVESTMENT PLANNING 2026 ACTUAL TEST
PAPER QUESTIONS SOLUTIONS VERIFIED
COMPLETE STUDY PACKAGE
◉ relief at source vs net pay arrangement for pensions
Answer: releif at source = peronal pension
net pay = company
◉ additional modern principles of taxation
Answer: 1. simplicity
2. flexibility
3 .social/environmental concerns (act in tension with fiscal
neutrality)
◉ what is equitable?
Answer: fair in its impact. tax should be proportionate to the
taxpayers ability to pay (horizontal vs vertical equity debate)
◉ What is certainty?
,Answer: clarity about how much is owed and when --> simple to
compute
◉ what is convenience?
Answer: easy for taxpayers to pay
- tax deducted at source like PAYE is easy
- direct assesment like having to file a self assesment tax return is
less easy for tax payer (but then easier for employer)
◉ what is efficiency
Answer: 1. economic - there should be fiscal neutrality (taxes
shouldn't impact economic decision-making)
2. Administrative - should generate more revenue than it costs to
administer
◉ horizontal vs vertical equity
Answer: 1. horizontal - similar positions are taxed in similar ways --
> but how do we judge this?
2. vertical - those in need pay less (progressive tax)
◉ what is the benefit principle?
Answer: when people are taxed proportionally to the amount of
benefits they recieve
,- TV license, council tax
◉ direct vs indirect tax
Answer: 1. direct - tailored to the indivuals circumstances (income
tax)
2. indirect tax - affects everyone equally (VAT)
◉ how does MTR vs ATR differ in flat vs progressive tax systems
Answer: 1. flat - MTR=ATR
2 progressive - MTR>ATR
◉ what is flexibility?
Answer: the tax system should be able to respons to changing
economic conditions (automatic stablisers)
- take more money out of growing economy to keep growth at
manageable level
- take less money out of shrinking ecconomy
- income + corporation taxes are flexible
◉ how does income tax, VAT and NIC score around equity?
Answer: income tax - good
VAT - poor (regressive)
, NIC - mixed
◉ how does income tax and VAT score around certainity?
Answer: income tax - good (PAYE)
VAT - good
◉ how does income tax, self-assessment and stamp duty score
around convenience?
Answer: income tax - very good (PAYE)
self assesment - mixed with stamp duty - good as on purchase
◉ administritve costs vs complience costs
Answer: administrative - bourne by HMRC
compliance - bourne by taxpayers
◉ what are the objectives of tax
Answer: 1. Managing the economy (employment levels, inflation,
business activity etc)
2. regulation
3. developing society (providing social welfare and helath services)
4.providing public goods
