Income tax computation

Question 1

Exempt income

Answer 1

Betting winnings
Interest on National Savings Certificates
Damages for personal injury
Income from individual savings accounts (ISAs)
Premium bond winnings

Question 2

Types of income levels

Answer 2

Non-savings (salary, land and buildings) - bottom slice
Savings - middle slice
Dividends - top slice

Question 3

Personal allowance

Answer 3

£12,500 each year goes non savings, savings, dividends.

Can not carry forward or take back
Sometimes can transfer to spouse

Question 4

Reduction in personal allowance for high earnings individuals

Answer 4

PA is reduced by £1 for every £2 of ANI over £100,000

Salary= £125K

125-100= 25 / 2 - 12.5K reduction to PA

Question 5

Adjusted net income calculation

Answer 5

ANI = total income less

loss relief
qualifying interest payments
gross gift aids

Question 6

Gift aid

Answer 6

Increase basic tax band by gift amount

Gift must be:
To a registered UK charity, give a gift aid declaration, must be unconditional, can only get limited benefits

Question 7

Child benefit

Answer 7

Every parent can claim however if ANI (adjusted net income) is over £50k there will be a child benefit income tax charge to reduce the benefit of higher incomes.

1% of the benefit for each £100 of ANI over £50k. Once £60k then entire benefit gone.

Question 8

Marriage allowance

Explanation
When to make an election

Answer 8

A spouse can elect to transfer a fixed amount to their partner, £1,250. Full allowance available in the year of marriage. Remember to reduce transferor’s PA by 1,250.

Election:
In advance (by 5 Apr 2020 for 2019/2020) will remain on force until it is withdrawn 
In arrears (within 4 years after the end of the tax year) will only apply for that year

Question 9

Computing taxable income - 4 steps

Answer 9

1. Put income in to 3 different columns: Non-savings, Savings, dividend (if income is exempt show this)
2. Add up in each 3 columns for total income
3. Deduct any losses and qualifying interest paid to get to net income
4. Deduct any personal allowance to get taxable income

Question 10

Computing income tax due - 3 steps

Answer 10

1. Calculate income tax at each rate
2. Deduct any marriage allowance and add back any child benefit charges
3. Deduct any tax already suffered on employment income to find tax outstanding