Income Tax Computation

Question 1

What is income tax computation about?

Answer 1

Is it the calculation of Total Income, Net Income, Taxable Income, Adjusted Net Income to find the Tax Liability and finally the Tax payable.

Question 2

How do we calculate Total Income?

Answer 2

Add the total of NSI (Non saving income, SI (Interest or savings Income) and DI (Dividend Income).

Question 3

How do we calculated Net Income?

Answer 3

Deduct the qualifying interest and trading loss from Total Income.

Question 4

How do we calculate Taxable Income?

Answer 4

Deduct the Personal Allowance (PA) from Net Income. (Net income is after deducting qualifying interest and Trading loss relief from Total Income)

REMEMBER to do the PA calculation if between 100,000 and 122,000. (Difference divided by 2 - 11,000)

Question 5

How do we calculate the Tax Liability?

Answer 5

Calculate the Adjusted Net Income to adjust the rate bands for Income Tax, and use the rates for calculating the tax liability for Taxable Income.

Question 6

How do we calculate Tax Payable?

Answer 6

Deduct the PAYE (Tax already deducted at source) from Tax Liability.

Question 7

How do we calculate Net Adjusted Income?

Answer 7

By deducting GROSS personal pension and GROSS gift aid payments from NET Income (which does not include PA deductions).

(100/80) Should be used IF the gross is NOT given.

Question 8

Non-saving Income Tax Liability reliefs and rates?

Answer 8

There is a base relief ONLY if it is less than 5000. If it is 3000 then the 2000 left of the relief can be used for SI as well.

Rates are as the following.

32,000 20%
32,000 to 150,000 40%
150,000 and higher 45%

Question 9

Saving Income reliefs and rates?

Answer 9

5000 base relief if there is NO non-saving income, If non-saving income is less than 5000 then the amount left.

Base relief of 1000 for Basic Rate tax payers.
Base relief of 500 for Higher Rate tax payers.
NO base relief of additional rate tax payers.

Rates are as the following.

32,000 20%
32,000 to 150,000 40%
150,000 and higher 45%

Question 10

Dividend Income reliefs and rates?

Answer 10

There is a base relief of 5000 for ALL rates of tax payers.

Rates are as the following.

32,000 7.5%
32,000 to 150,000 32.5%
150,000 and higher 38.1%

Question 11

Can Personal Allowance be transferred among civil partners?

Answer 11

Yes you can. But it is ONLY limited up to 1100 and it will be deductible ONLY when calculating tax liability by taking 20% of the 1100.