Income tax

Question 1

Who are chargeable persons for income tax purposes?

Answer 1

• individuals (including sole traders)
• individual partners
• trustees
• personal representatives

Question 2

What tax do companies and corporate partners pay?

Answer 2

Corporation tax on their income profits and capital gains

Question 3

What is included in ‘income’?

Answer 3

• salary
• dividends
• interest received
• trading profit (for sole traders and partners)
• the profit element of rent received

Question 4

When is the income tax year?

Answer 4

6 April in one year to 5 April in the next

Question 5

What are the five steps to calculate income tax?

Answer 5

1. Calculate total income
2. deduct allowable reliefs
3. deduct personal allowances
4. calculate the tax for each source of income
5. add together the tax for each source of income and deduct any tax previously paid/deducted at source to give IT liability

Question 6

What is taxable income?

Answer 6

Income after deduction of allowable reliefs and personal allowances.

Question 7

What is a basic rate taxpayer?

Answer 7

A person whose taxable income does not exceed the basic rate threshold which is £50,270

Question 8

What is a higher rate taxpayer?

Answer 8

A person whose taxable income exceeds the basic rate threshold but does not exceed the additional rate threshold which is £125,140

Question 9

What is an additional rate taxpayer?

Answer 9

A person whose taxable income exceeds the additional rate threshold which is £125,140

Question 10

What does a person’s income have to be separated into?

Answer 10

Savings and dividend income and non-savings/non-dividend income

Question 11

What order is income taxed?

Answer 11

1. non-saving and non-dividend income
2. savings income
3. dividend income

Question 12

What are the income tax rates for non-savings and non-dividend income?

Answer 12

basic rate - 20% (1-37,700)
higher rate - 40% (37,701-125,140)
additional rate - 45% (125,141 & above)

Question 13

What are the income tax rates for savings income?

Answer 13

starting rate - 0% (5000)
basic rate - 20% (5001-37,700)
higher rate - 40% (37,701-125,140)
additional rate - 45% (125,141 & above)

Question 14

What are the income tax rates for dividend income?

Answer 14

basic rate - 8.75% (1-37,700)
higher rate - 33.75% (37,701 -125,140)
additional rate - 39.35% (125,141 & above)

Question 15

What is exempt from the gross income calculation for total income (step 1)?

Answer 15

Child benefit, interest paid on national savings certificates, interest from individual saving accounts (ISAs) and interest on damages for personal injury or death

Question 16

What is the most important allowable relief to remember?

Answer 16

Interest on ‘qualifying loans’ which includes interest paid on (a) a loan to buy a share in a partnership, or (b) a loan to invest in a close trading company

Question 17

What is net income?

Answer 17

Income after allowable reliefs deducted but before deduction of personal allowances

Question 18

What are the personal allowances?

Answer 18

• £12,570 for below £100,000.
• Over £100,000 personal allowance is withdrawn by £1 for every £2 of net income over £100,000.
• Income of £125,000 no personal allowance.

Question 19

What is the personal allowance calculation for someone that earns £110k.

Answer 19

£110k - £100k = £10k
£10k / 2 = £5k
£12,570 - £5k = £7570

Question 20

How much of an individual’s unused personal allowance can be transferred to a spouse or civil partner?

Answer 20

£1260

Question 21

What is the personal savings allowance?

Answer 21

Basic rate - £1,000
Higher rate - £500
Additional rate - nil

Question 22

What is the dividend allowance?

Answer 22

£1000