2. Basic income tax computation

Question 1

What income is typically exempt from income tax? (3)

Answer 1

• ISAs
• Interest from NS&I certificates
• Winnings i.e. gambling, lottery

Question 2

Your personal allowance is effected by the ANI. How do you calculate ANI?

Answer 2

Net income X
Gross gift aid (X)
Gross personal pension contributions (X)
= Adjusted net income X

Question 3

How does the marriage allowance work?

Answer 3

Giving spouse surrenders 10% (£1,250). Spouse receives 20% (£250). Received as a tax relief so taken off tax bill rather than taxable income.

Note: cannot result in repayment.

Question 4

What is a qualifying interest payment and how is it treated?

Answer 4

Tax relief given on interest paid on:

employees:

• shares bought into employee owned company they work full-time for
• plant and machinery bought for employment

partners:

• shares in partnership or contribution of capital in partnership they are partner in.
• plant and machinery to be used in partnership.

Question 5

How does gift aid affect tax?

Answer 5

Donation is at net 80%, HMRC pay 20%.

Income tax brackets adjusted by gross donation.

Question 6

How do you calculate child benefit tax charge?

How should this be rounded?

Answer 6

Owe 1% of child benefit back for every £100 you earn over £50,000.
Charge added to partner with higher ANI.
Round answer down.

Question 7

Sufficient ties test levels (5)

Answer 7

1. Family
2. Accommodation
3. Work
4. Days in UK (more than 90)
5. Country