Income Tax Flashcards
What are the two methods HMRC collect income tax?
1) Self-Assessment
2) Deduction at source
What is total income in income tax?
A taxpayer’s gross income from all sources
What is net income in income tax?
Total income less available tax reliefs
What is taxable income in income tax?
Net income less the personal allowance
What are the steps in calculating income tax?
Step 1) Calculate total income
Step 2) Calculate net income
Step 3) Calculating Taxable income
Step 4) Applying the Tax Rates
How do you calculate total income?
Add together all receipts from all sources of income of that particular individual
What is the personal savings allowance?
Pay 0% on £1,000 for basic taxpayers, £500 for higher rate taxpayers
What is the dividend allowance?
Pay 0% on first £500 of dividend income
How do you calculate net income?
Deduct available tax reliefs from net income
Is paying interest on qualifying loans a form of tax relief?
Yes, as it can be deducted from Total Income
What includes qualifying loans?
- Loans to buy interest in partnership
- Contribution to partnership
- Loans to buy shares to a close company
- Loans to buy shares in employee-controlled company
Are pension scheme contributions deductible from taxable income?
Yes
How do you calculate taxable income?
Deduct personal allowance from net income
What is the annual personal allowance for income tax?
£12,570
By what amount if personal allowance reduced based on earnings?
Reduced by £1 for every £2 of net income above £100,000
What must be done when applying the tax rates?
The different types of income (non-savings, savings, dividends) must be separated
In what order are the different types of income taxed?
Non-savings, then savings, then dividend income
How do you calculate non-savings income?
Simply deduct savings and dividend incomes from taxable income
What are the different tax bands?
1) Basic
2) Higher
3) Additional
What are the different taxable income ranges for the different tax bands?
1) £0 - £37,700
2) £37,701 - £125,140
3) + £125,140
What are the non-savings and savings tax rate per band?
1) Basic – 20%
2) Higher – 40%
3) Additional – 45%
What are the dividends tax rate per band?
1) Basic – 8.75%
2) Higher – 33.75%
3) Additional – 39.35%
