Chapter 2 - Income Tax Computation

Question 1

Basic Proforma

Answer 1

Trading Income
Employment Income
Property Income
Pension Income
NON-SAVINGS Income

SAVINGS Income
Building society Interest
Bank Interest
Dividends

TOTAL Income
Less: Reliefs

NET Income
Less: Personal Allowance

Taxable Income

Question 2

Non Savings Income

Answer 2

Trading Income - Trade, profession, vocation including self employment
Employment Income - Salaries, bonuses, other benefits
Pension Income - occupational or personal pension fund
Property Inome - rental or granting a short lease

Question 3

Investment Income

Answer 3

Savings Income - Interest (Chapter 3)
Dividend Income (Chapter 3)

Question 4

PA Deduction Order

Answer 4

Non-savings Income, Savings Income, Dividend Income
Surplus PA is lost
Cannot be offset against capital agains
Can be transferred to a Spouse

Question 5

Exempt Income

Answer 5

NS&I Savings Certificate Purchase/Proceeds
Betting, lottery and bond winnings
Income in an ISA
Shares and Profit on sale of shares

Question 6

Reduction of Personal Allowance (High Income)

Answer 6

Anything above $100k:
PA MINUS:
Net Income (includes dividends and savings)
Less gross gift aid donations, personal pension contributions, and Basic PA to get ANI

50%*(ANI-$100k), minus from the PA to get adjusted PA
Nothing if above $125,140

Question 7

Rates of Income tax - Non-Savings Income

Answer 7

Basic Rate £0-£37,700 = 20%
Higher Rate £37,701-£125,140 = 40%
Additional Rate £125,141+ = 45%

Question 8

Income tax Computation Proforma

Answer 8

Trading Income
Employment Income
TOTAL INCOME

Less: PA or adjusted PA
TAXABLE INCOME

Question 9

Income Tax further Proforma

Answer 9

Trading Income
Employment Income

Question 10

Tax Relief

Answer 10

Employees: Purchase of plant or machinery, or purchase shares
Partners: Purchase of a share or contribution to share capital, purchase of plant or machinery

Question 11

Donations under Gift Aid - Band extension

Answer 11

This increase the tax rate bands: *100/80

E.g. gift of £3,600:

Basic rate band: £37,700
Gift aid donation £3,600*100/80 - £4,500
Extended basic rate band: £42,200

Question 11

Child Benefit

Answer 11

Use the same Proforma as restriction of personal allowance:

Child Benefit Received X

Net Income X
Less: Gross Gift Aid: (X)
Adjusted Net income: X
Less Lower Limit (50,000)
Total: X
Take 1% of Total and round down and then multiply by Child benefit received

If in marriage - the tax charge will be levied on either spouse even if not beneficiary

Question 12

Isn’t a UK resident if:

Answer 12

Not a UK Resident if
in UK less than 16 days
in UK less than 46 days hasn’t had a residence in past 3 years
in UK less than 91 days works overseas

Question 13

Is a UK resident if:

Answer 13

Over 183 days in country
Only home is in the UK
Works full time in the UK

Question 14

Marriage Allowance

Answer 14

Can only transfer a fixed $1,260*.20 = $252
This reduces the transfers PA by 1,260
Reduces tax liability of transferee by 252
Only on basic rate tax payers