Income Tax Computation

Question 1

What are the 10 main types of exempt income?

Answer 1

Income from ISA
Interest on national savings certificates
Winnings
Some Social security benefits
First 7.5k rent a room income
Scholarships
Income tax repayment interest
Universal credit
Apprenticeship bursaries to care leavers
Compensation schemes

Question 2

What is the personal allowance?
What is adjusted net income (ANI)
How is adjusted net income used in relation to personal allowance?

Answer 2

£12,570
ANI=net income less gross gift aid less gross personal pension
For every £2 of ANI over 100k deduct £1 from the personal allowance

Question 3

What is the blind persons allowance?

Answer 3

£2,520 on top of the personal allowance

Question 4

What order is income taxed?

Answer 4

Non-savings
Savings
Dividends

Question 5

What are the income tax rates?

Answer 5

Non savings
Basic rate band - 20%
Higher rate band - 40%
Additional rate band - 45%

Savings
Starting rate band - 0% (1-5,000)
Basic rate band - 20%
Higher rate band - 40%
Additional rate band - 45%

Dividend
Basic rate band - 7.5%
Higher rate band - 32.5%
Additional rate band - 38.1%

Question 6

What is the starting rate band?

What is the savings income nil rate band?

Answer 6

Starting rate band - any savings income falling in first 5k of basic rate band is tax free - uses up basic rate band

Savings income nil rate band
Basic rate tax payer - 1k tax free
Higher rate tax payer - £500 tax free
Uses up basic rate band

Question 7

Dividend income allowance?

Answer 7

First 2k of dividends is 0 rated

Uses bands

Question 8

How is gift aid treated in income tax comp?

Answer 8

Gift aid paid at 80% so 20% relief at source no adjustment for Income Tax for basic rate tax payers

Higher tax payers - extend basic rate band by gross gift aid

Additional tax payers - extend basic and higher rate band by gross gift aid

Question 9

Gift of asset to charity calculation?
Types of asset?
Where is deduction given in IT comp?

Answer 9

MV plus
Incidental costs of disposal less
Amount paid by charity

Qualifying shares and land/buildings

Deduction given on total income

Question 10

What are qualifying shares for gift of assets to charity relief?

Answer 10

Shares on recognised stock exchange
Units in an authorised unit trust
Share in open ended investment company
Foreign collective investment schemes

Question 11

What is payroll giving scheme?

Answer 11

Employer deducts donation from gross salary giving relief at source

Question 12

What are the 4 main types of qualifying interest for income tax deductions?

Answer 12

Loan to buy P&M for partnership/employment (3 years max)

Loan to buy int in close/employee controlled/cooperative company

Loan to invest in partnership

Loan to pay inheritance tax

Question 13

What is the cap on qualifying interest payments against income?
What is adjusted total income?

Answer 13

Capped at higher of:
50k
25% of adjusted total income

Adjusted total income is:
Total income plus payroll giving less gross personal pension contributions

Question 14

Income from jointly owned assets for married couples:
How is income from assets split?
Election available?

Answer 14

Income is split equally for each spouses income tax comp

Election can be made for income split relating to actual ownership

Question 15

What is the marriage allowance and how is it used?

Available to who?

Answer 15

£1,260

One spouse can transfer this amount to the other spouse to increase their personal allowance

Available for transfer to a spouse with nil or income taxed at basic rate if transferor pays no tax before transfer

Question 16

Child benefit tax charge
What is the child benefit amounts?
When does it apply?
How is the charge calculated?
How do you calculate Adjusted net income (ANI)?

Answer 16

1st child £21.15 per wk £14 per wk 2+

Charge applies if a spouse earns 50k+

1% charge for every £100 over 50k rounded down to nearest £100

ANI=total income-gross gift aid/pension