Income tax computation

Question 1

Chargeable income

Answer 1

Employment
Trading
Renting out property
Investments

Question 2

Exempt income

Answer 2

National Savings Certificate interest
ISA income
Betting
£7,500 for rent a room scheme
Scholarships
Income tax repayment interest
Universal credit
Payments made under compensation schemes

Question 3

Income taxed at source

Answer 3

Employment income
Overseas income

Question 4

Non-savings income

Answer 4

Employment
Trading
Property
Pension

Question 5

Savings income

Answer 5

Interest from investments
0% for first £5,000 of taxable income
£1000 Nil Rate Band for basic rate taxpayers, £500 for higher rate taxpayers (counts towards usage of bands)
Same rate bands as non-savings income

Question 6

Non-savings / savings income rate bands

Answer 6

37,700 @ 20%
37,700 - 125,140 @ 40% (87,440)
Above 125,140 @ 45%

Question 7

Dividend income

Answer 7

Dividends from companies
£1000 dividend Nil Rate Band (counts towards usage of bands)
BRB at 8.75%
HRB @ 33.75%
ARB @ 39.35%

Question 8

Personal allowance

Answer 8

£12,570

Question 9

Personal allowance when adjusted net income > £100,000

Answer 9

12,570 - (ANI - 100,000) / 2

Question 10

Blind person’s additional personal allowance

Answer 10

£2870
Can be transferred to spouse / civil partner if recipient not eligible

Question 11

Computing tax payable / repayable

Answer 11

Deduct any tax paid at source from the income tax liability

Question 12

Gift aid

Answer 12

Income tax relief given for donations to UK registered charities
HMRC gross up the donation by 5/4
Extends the basic rate band by the gross donation

Question 13

Payroll giving scheme

Answer 13

Donation deducted from income before income tax is calculated
Provides tax relief at the employee’s highest tax rate

Question 14

Gifts of assets to charity

Answer 14

A deduction is made on total income if the whole of a shareholder’s interest in qualifying shares is given / sold at undervalue to a charity
Value of deduction = market value of shares + cost of disposal - consideration paid by the charity

Question 15

Joint ownership taxation

Answer 15

Income and taxation from jointly owned property is shared equally between spouses unless a declaration is made for it to be based on actual % ownership
Notice of the declaration must be sent to HMRC within 60 days

Question 16

Marriage allowance

Answer 16

£1260 of a personal allowance may be transferred to a spouse
Transferor spouse must have no tax liability / in BRB after reduction
Recipient spouse must be in BRB
Calculate regular tax liability then subtract 1260 x 20%

Question 17

Devolved taxes

Answer 17

Scottish and Welsh parliaments can set its own non-savings rates and bands

Question 18

Child benefit tax rate

Answer 18

£1,248 for the eldest child
£827 for each other child

Question 19

Child benefit tax charge

Answer 19

Income tax charge applies if a taxpayer in receipt of child benefit has adjusted net income > £50,000 in a tax year
1% of child benefit amount for each £100 of income between £50k - £60k
100% child benefit amount if adjusted net income > £60k
Partner with the higher income liable for the charge

Question 20

Interest payments made during a tax year on loans taken out by a taxpayer for the following purposes are deductible from their total income

Answer 20

To buy plant or machinery / an interest in a close company or an employee-controlled company
To invest in or lend to a partnership
To buy shares in or lend money to a cooperative
To pay inheritance tax