Income Tax Flashcards
Income liable to income tax
- Money from employment
- Any benefits from employment
- Profits from self-employment
- Most Pensions
- Rental income
- Income from trusts
- Interest
- Dividends in excess of allowance
Income NOT liable to income tax
- Income from ISAs/JISAs
- rent a room relief (£7500)
- Interest (Personal Savings Allowance) - BRT £1000, HRT £500 ART £0
- Dividend - First £2000 (Dividend Allowance)
- Premium Bonds
- National Lottery wins
Dividend Rates 2022/2023
Basic: 8.75%
Higher: 33.75%
Additional: 39.35%
Calculate total income tax liability if I earn £30,000 per annum
£30,000 - £12,570 = £17,430 (Taxable Income) x 20% = £3,486 tax liability
Calculate total income tax liability if I earn £33,000 per annum
£33,000 - £12,570 = £20,430 (Taxable Income) x 20% = £4,086 tax liability
Calculate total income tax liability if I receive £18,570 in interest (no other income).
£18,570 less Personal Allowance of £12,570 = £6,000.
Total savings income = £6,000
First £5,000 starting rate will apply at 0%
Next £1,000 - Personal Savings Allowance.
NO TAX LIABILITY!
Calculate total income tax liability if I receive £4,720 from earnings and £15,000 interest from my savings account.
£4,720 + £15,000 = £19,720
£19,720 - £12,570 (Personal Allowance) = £7,150
£7,150 - £5,000 (Starting Rate) = £2,150
£2,150 - £1,000 (PSA) = £1,150
£1,150 x 20% (BRT) = £230 tax liability
Calculate total income tax liability if I receive £15,070 earnings and £20,000 interest from my savings account.
Non-savings: £15,070 - £12,570 = £2,500 x 20% = £500
Savings: £20,000 - £2,500 (SRB) - £1,000 (PSA) = £16,500 x 20% = £3,300 + £500 = £3,800 tax liability
Calculate total income tax liability if I receive £16,500 earnings and £30,000 interest from my savings account.
£16,500 - £12,570 = £3,930 x 20% = £786
£30,000 - £1,070 (SRB) - £1,000 (PSA) = £27,930 x 20% = £5,586 + £786 = £6,372 tax liability.
What is the Personal Allowance for someone whose income is £120,000?
Gross Income: £120,000
Less Threshold: - £100,000
= £20,000 / 2 = £10,000
£12,570 - £10,000 = £2,570 Personal Allowance
What is the Personal Allowance for someone whose income is £110,000?
Gross income: £110,000
Less threshold: -£100,000
= £10,000 / 2 = £5,000
£12,570 - £5,000 = £7,570 Personal Allowance
Calculate total income tax liability for someone who earns £170,000 per annum
No Personal Allowance.
£37,700 x 20% = £7,540
£112,300 x 40% = £44,920
£20,000 x 45% = £9,000
total tax liability = £61,460
Employed Income =
PAYE which includes income from pensions and social security benefits. Employed / Pension provider calculates and deducts income tax and pays it to HMRC on your behalf.
Income from property =
Rental Income, e.g. rent from buy to let
Investment Income =
Split between income from savings (e.g. interest from cash, payments from purchased life annuities and gains from life assurance contracts etc) and income from investments (e.g. dividends from equity based investments)
Other Income =
e.g. intellectual property (image rights, patents, etc)
Split income into categories. Tax is applied in the following order:
- Earned income
- Savings Income
- Dividend Income
- Chargeable gains from life assurance policies (e.g. Bonds)
After taking off the available allowances, the tax bands are as follows:
- The standard basic rate band is £37,700
- The standard higher rate band is £37,700-£150,000
- The standard additional rate band is £150,000 plus
What is income tax?
- Annual tax on income
- Direct and progressive
- Annual changes from the Finance Act 2003
- Main Legislation = Income Tax Act 2007, Income Tax (Earnings and Pensions) Act 2003, Income Tax (Trading and other income) Act 2005, Capital Allowances Act 2001.
Simple calculation for calculating income tax (8 steps)
- Find amounts and types of income
- Split into 3 categories (non-savings, savings and dividend)
- Add all taxable income and make allowable deductions
- Consider any reductions to allowances
- Deduct any allowances
- Consider any extensions to the basic rate
- Apply tax rates
- Deduct any tax reducers
What is Charitable Giving?
- Payroll giving
- Gift Aid (extends the basic rate band)
Payroll giving =
- regular gifts to charity by employers
- deducted by employer before PAYE - full tax relief at source
- relief restricted to amount of tax paid
- Donations made in this way may not be shown in tax return or included in tax computation.
Gift Aid =
- Donor’s gift treated as a payment on which Basic Rate tax paid
- Charity can claim this basic rate of tax
- Extra tax relief by increase to basic rate band
- Higher / Additional rate taxpayer claimed via self-assessment
Loss of Personal Allowance
- for those who earn over £100,000, the personal allowance is reduced by £1 for every £2 over £100,000.
- No personal allowance where income is over £125,140.
13 Employment Benefits EXEMPT from tax:
- Group Income Protection
- Provision of Meals
- Mobile Phones
- Long Service Awards
- Suggestion Schemes
- Work-related Training
- Relocation and Removal Expenses (up to £8k)
- Home Working
- Workplace Nurseries
- Liability Insurance
- Pension Advice
- Coronavirus Tests
- Trivial Benefits
10 Taxable Employee Benefits:
- Use of Assets
- In-house Benefits
- Company Cars
- Beneficial Loans
- Living Accommodation
- Cash Vouchers
- Non-cash vouchers
- Credit Tokens
- Employee liabilities
- Medical Insurance
Which form is used to tell beneficiaries about trust income?
R185
