Calculating income tax Flashcards
Income tax rates Calculating tax liability Calculating tax payable (tax due) Extending the tax bands Personal pension schemes Putting it all together Tax planning
What does the tax liability proforma include?
The tax liability proforma breaks down tax rates for different types of income:
Non-savings income:
20%: Up to £37,700
40%: From £37,701 to £125,140
45%: £125,141 and over
Savings income:
0%: Up to £1,000 for basic rate; £500 for higher rate earners
20%: From £37,701 to £125,140
40%: From £37,701 to £125,140
45%: £125,141 and over
Dividend income:
0%: Up to £1,000
8.75%: Up to £37,700
33.75%: From £37,701 to £125,140
39.35%: £125,141 and over
Calculation of tax liability:
TAX LIABILITY - PAYE = TAX PAYABLE
This proforma aids in estimating tax obligations across different income types, ensuring accurate tax filings.
How do you calculate the extension to the basic rate band for Gift Aid donations?
The extension to the basic rate band for Gift Aid donations is calculated as follows:
Gross charitable donation = Donation paid × 100/80
This formula accounts for the tax relief gained through charitable donations, effectively increasing the basic rate band.
How is the extension to the basic rate band calculated for contributions to a personal pension?
To calculate the extension to the basic rate band for personal pension contributions:
Gross pension contribution = Pension contribution × 100/80
What is the maximum pension contribution eligible for tax relief?
The maximum contribution to a personal pension plan eligible for tax relief is the greater of:
- £3,600
- 100% of earnings - this is subject to an overall cap of £40,000. Contributions exceeding this amount do not receive tax relief.
Understanding this limit is vital for optimizing tax relief benefits when planning pension contributions.