learners must examine fiscal and monetary policies in relation to a chosen business. This will involve analysing the possible impact of changes in the tax regime, as well as interest rate changes, on a selected business’s operations. The range of possibilities is extensive and will vary over tim...
BTEC Level 3 National Extended Diploma in Business
Unit 38
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Task 2.1- explain how both fiscal and monetary policy decisions have
affected a selected business
Introduction
In this task I am going to write a report explaining the impact of fiscal &
monetary policies will have on my selected business which is Curry’s. I am going
to describe each fiscal policy and monetary policy which is aligned within them
and impact them on my selected business. I am going to explain the positive and
negative effect of the fiscal and monetary policy and how Curry’s can deal with
them.
Fiscal Policy
Fiscal policy is a policy that allows a government to increase its tax rates and
spending levels to help the economy grow. Fiscal policy helps decrease
unemployment and control inflation by lowering tax rates to increase economic
growth. Fiscal policy was created by the ideas of a British economist called John
Maynard Keynes. Fiscal policy influences in government borrowing from banks
and the rates of debt. If the UK government increase tax they will be able to
squeeze out money from the economy. Fiscal policy impacts on businesses like
Curry’s because they have to pay income tax every year in order for the
government to raise revenue and also enables it to discourage various activities
and to encourage other people who are suffering from low rates in tax and
subsides. Taxation affects Curry’s when they make their profit.
Direct Taxation- Direct taxation is when tax is paid directly to an organisation.
Direct taxation has a huge effect on businesses as this will increase their income
and profit. Businesses can be able to invest money inside their business.
Examples of direct taxation are:
Income tax- This is a tax that governments receive from businesses’
growth on sales. This benefits those businesses because it will increase
their income and profits. They will receive more money which they can be
able to invest inside the business. Businesses have to file a tax return
every year to see if they are owed any taxes or they organised a tax
refund. Income taxes increases public spending such as bus services,
library services, schools, and hospitals. The current basic rate for 2014-15
by 20% is 0-£31,865. The current higher rate by 40% for 2014-15 is
£31,866-£150,000. The current additional rate by 45% for 2014-15 is over
£150,000. Income taxes affect business like Curry’s because it will affect
the amount of profit they make.
Corporation Tax- This is a tax on company profits that they earn. This
applies mostly on their operating earnings and expenses such as vehicles,
repayment of loans, office equipment such as pens, pencils, desks and
computers. Many businesses tend to pay their corporation taxes at
smaller amounts to be able to reinvestment more in their businesses at a
later time. Taxable profits that associate with corporation tax are trading
profits & investment profits which both of them are linked to businesses’
taxable income. The current corporation tax rate for businesses in 2014 is
20% for the profit £300,000 or less. The current corporation tax rate for
businesses in 2014 for profits above £300,000. The rise in corporation tax
, increases inflation. Corporation tax impacts on Curry’s because demand &
sales will decrease due to the increase of prices.
National Insurance contributions-This is a tax that involves heavily on
a business’s income. National insurance contributions are funded for the ill
and unemployed and it is later paid in state pensions. National insurance
contributions are made through income taxes & payrolls. This benefits
government spending because the government can spend more money on
public services for consumers. Contributions are unlimited as they are
removed from upper income levels allowing the process of the
contributions to function successfully. The current rate for the
contributions below £111 (lower earnings unit) is 0%. The current rate for
the contributions by £111- £153 (primary threshold) is 0%. The current
rate for the contributions by £153.01-£805 (upper earnings unit) is 12%.
The current rate for the contributions above £805 is 2%. National
insurance contributions impacts on Curry’s because Curry’s can invest
more money in their business. Curry’s will use their profits to pay for their
national insurance contributions. Consumers will have to pay their
contributions which will reduce their disposable income. They will not be
able to afford Curry’s products which sales & profit will decrease for the
business.
Indirect Taxation- Indirect taxation is when taxes are taken indirectly from
consumers and added to prices on products by businesses which will be charged
to the consumer. It allows the consumer to pay more for products as prices have
increased. Examples of indirect taxation are:
Value Added Tax (VAT) - This is a tax that is charges on the goods and
services produced by businesses in the UK. VATs are also added to goods
and services that are produced in the European Union. VATs covers
business gifts, staff meals, and sales. Curry’s are implied to pay VATs in
order to increase their tax revenue. The UK’s VAT is 20%. The VAT changed
in January 2011. This will impact on Curry’s because prices will increase by
20%. Demand and sales will decrease.
Excise duty- This is an indirect tax that the government does not directly
apply too. Excise duty involves on goods, services, tobacco, alcohol, and
fuel. Excise duty is usually involved with luxurious goods which can be
harmful to the environment. Excise duty can raise government revenue
and to reduce demand also. The rates of excise duty for 2014 are:
Alcohol type Rate per litre of pure
alcohol
Spirits £28.22
Spirits-based: Ready-to- £28.22
drinks
Wine and wine made: £28.22
Exceeding 22% abv
Alcohol type Rate per hectolitre per cent
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