Chapter 6: Calculating Income tax

Question 1

Extending the basic rate band

2 methods

Answer 1

Gift aid donation

or

Personal pension contributions

Question 2

Gift Aid Donations

Answer 2

Tax relief is at highest marginal rate

If basic rate tax payer - they have received the basic rate tax relief on donation

If higher rate tax payer - further relief is available by extending basic rate band, 20% at source and 20% through extending basic rate band

Question 3

Gift aid donation to charity - Extension to basic rate band

Answer 3

Gift aid donation to charity = Extension to basic rate band

Gross charitable donation = donation paid x 100/80

Question 4

Personal pension schemes

Answer 4

Extends basic rate band by gross pension contribution

maximum tax relief is the higher of £3600 and 100% of their earnings, cap of £40,000

amount contributed * 100/80

Question 5

Tax planning

Answer 5

It is important that couples plan their income to try take advantage of their savings allowances and dividend allowances and consider the rates of tax being applied