Chapter 2 - Calculating Income Tax

Question 1

What are the three types of non-savings income?

Answer 1

Earnings
Trading income
Property income

Question 2

True or False -
Foreign income may be non-savings, interest, or dividends

Answer 2

True - foreign income can be all three

Question 3

True or false -
Deductible payments are deducted in an order so to not achieve the greatest reduction in an individual’s tax liability

Answer 3

False

Question 4

What income are deductible payments first deducted from?

Answer 4

Non- savings income

However, payments can be made from interest & dividends where there is an insufficient amount of non-savings income

Question 5

How do you calculate Net income?

Answer 5

Total income LESS deductible payments

Question 6

How much is the personal allowance & where is it deducted from?

Answer 6

£12,570

The personal allowance is deducted from the net income to achieve the greatest reduction in tax liability

Question 7

How do you calculate the personal allowance for someone who’s adjusted net income exceeds £100,000 & earns £110,000?

Answer 7

Personal allowance less 0.5 x (110,000 - 100,000)

Question 8

What is the basic rate of tax?

Answer 8

20% - first £37,700

Question 9

What is the additional rate of tax?

Answer 9

45% - excess of £125,140

Question 10

What is the higher rate of tax?

Answer 10

40% - next £87,440

Question 11

True or false
20%, 40% & 45% rates apply to all types of income

Answer 11

False
The rates apply to non-savings income only

Question 12

True or false
Any income tax which the individual has already paid in the course of the tax year can be deducted from the tax liability

Answer 12

True
This gives the final figure of tax due and payable to HMRC