Introduction to income tax

Question 1

Who pays income tax?

Answer 1

All individuals resident in the UK

Question 2

What is income tax calculated on?

Answer 2

Taxable income earned in the tax year

Question 3

Define tax return

Answer 3

An individual’s declaration under the self=assessment system giving details of their taxable income and gains for a tax year

Question 4

When do taxpayers not need to submit a tax return?

Answer 4

If tax has been deducted at source under PAYE

Question 5

What are examples of income exempt from income tax?

Answer 5

1. Income from ISAs
2. Interest from National Savings Certificates (NS&I Certificates)
3. Winnings
4. Some social security benefits
5. Scholarships
6. Income tax repayment interest

Question 6

Define net income

Answer 6

Total of all income less reliefs

Question 7

What are the types of income?

Answer 7

1. Non-savings income
2. Savings income
3. Dividend income

Question 8

Define taxable income

Answer 8

Net income after the deduction of the tax-free personal allowance

Question 9

Which tax does the personal allowance apply to?

Answer 9

Only income tax

Question 10

After what income bracket is the personal allowance restricted?

Answer 10

On incomes over £100,000

Question 11

How should personal allowance calculated be rounded?

Answer 11

Up

Question 12

What order should taxable income be taxed in?

Answer 12

1. Non-savings income
2. Savings income
3. Dividend income

Question 13

When does the starting rate on Savings Income of 0% apply?

Answer 13

If savings income falls into the first £5000 of taxable income

Question 14

When is the savings income nil rate band available?

Answer 14

For taxpayers with taxable income below £150,000 whose savings income is not covered by the starting rate band

Question 15

How is tax relief obtained for gift aid on basic rate taxpayers?

Answer 15

1. Relief is given at the time of donation by only giving 80% to charity
2. No adjustment is needed in the income tax computation

Question 16

How is tax relief obtained for gift aid on higher rate taxpayers?

Answer 16

1. 20% tax relief is granted at the time the payment is made
2. A maximum of 20% extra tax relief is given by increasing the higher rate threshold by the gross amount of the gift (100/80)
3. The total tax relief given is therefore 40%

Question 17

How is tax relief obtained for gift aid on additional rate payers

Answer 17

1. 20% tax relief is granted at the time the payment is made
2. A maximum of 25% extra tax relief is given by increasing the higher and additional thresholds by the gross amount of the gift (100/80)
3. The total tax relief given is therefore 45%