Income tax Flashcards

1
Q

List the 5 steps to calculate income tax in order.

A
  1. Total income - Add together non savings, savings and dividends income. (gross up savings and dividends income)
  2. Net income - Subtract deductible payments
  3. Taxable income - Deduct personal allowance (9,440)
  4. Apply relevant tax rates: non-savings, savings, dividend
  5. Total tax liability - Add together tax payable at step 4
  6. Tax payable to HMRC - subtract tax paid at source (grossed up tax amount)
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2
Q

How do you gross up savings?

A

Multiply by 100, divide by 80

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3
Q

How do you gross up dividends?

A

Multiply by 100, divide by 90

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4
Q

What is the total tax liability?

A

Tax payable before deducting tax paid at source

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5
Q

What deductions should be made at step 2?

A

Pension

Charges (loans to buy shares/partnerships/co-operatives)

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6
Q

What is rent?

A

A form of non-savings income

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7
Q

When is personal allowance not available?

A

When reduced by £1 for every £2 of net income over £100,000

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8
Q

Benefits in kind are a form of income receipt. True or false.

A

True. As such they should be included in the figure for total income.

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