General Income Tax Notes Flashcards
PA when total income is below 100k?
12,570
PA when total income exceeds 100k?
tapered
e.g., income is 110k
110k-100k = 10k
10k/2 = 5k
12,570-5k = 7,570 PA
PA when total income is above 125,140?
0
SA for BRB, HRB, ARB?
BRB = 1,000
HRB = 500
ARB = 0
which type of income is used for calculating PA?
adjusted net income
adjusted net income?
total income - gross personal pension contribution - gross gift aid contribution
what is adjusted net income for?
calculating PA
net disposable income?
income that an individual has available to spend
takes into account cash inflows and outflows
marginal tax rate?
tax rate that an individual will pay on their next pound of income
e.g., in BRB, you’ll be taxed at IT 20% and class 1 NIC 8% - 20% + 8% = 28%
effective tax rate?
total tax liability / total employment income earned
e.g., NIC = 1390, IT = 5578 (total tax paid = 6,968), total employment income = 40,460
6968/40,460 = 0.17221 = 17%
how do you gross up gift aid contributions?
contribution * 1.25
are there two types of pension schemes?
yes
- occupational/workplace pension
- personal pension scheme
how do pension schemes work?
employers and employees make contributions into a pension scheme, which then invests those amounts into financial instruments (e.g., stocks, bonds etc)
the returns are tax free
when the individual retires, they can take out a lump sum, and receive the rest as an annual pension income
what relief do employees receive when they contribute to a pension scheme?
the amount is deducted from employment income
are employer pension contributions a taxable benefit for employees?
no, exempt benefit
two rules for occupational/workplace pension scheme?
- employee contributions are deductible from employment income
- employer contributions are exempt benefits
how is PAYE treated for employment income?
it is deducted off the tax liability
how do personal pension schemes work?
the contribution paid into the scheme is the net amount, but the gross amount goes into the pension fund
e.g., amount paid (net) = 4000, gross amount = 5000
how is tax relief given for personal pension contributions?
- the BRB is extended
- amount is deducted from total income to create adjusted net income
treated the same way as gift aid
difference between workplace and personal pension schemes?
workplace = tax reduction as tax relief (deducted from tax liability)
personal = brb extended by gross pension contribution and deduct for adjusted net income
cash basis?
accruals basis?
cash basis = recognise expenses paid and cash received
accruals basis = recognise expenses incurred and cash earned
what is the default basis for 24/25?
cash basis
marginal tax rate?
the % of tax you’ll pay on the next £ of income
e.g., 20% IT, 8% Class 1 NIC = 28% MTR
net disposable income?
cash in less cash out
