Module 2 The income tax computation

Question 1

What incomes are subject to income tax?

Answer 1

Self-employment income (sole trader/partnership) 
Employment income 
Pension Income
Property / Land income 
Bank interests/ Dividends

Question 2

All income of an individual for a tax year must be shown ? in the tax computation?

Answer 2

Gross - Before tax deductions

Question 3

How is property income taxed?

Answer 3

Taxed on the rental receipts less any expenses related to the property

Question 4

Is interest from National Savings and Investment accounts taxable?

Answer 4

Yes, taxed at the same rates as interest from other banks.

Question 5

Couples with joint accounts, how are their interest treated for tax?

Answer 5

The interest received is deemed to be halved.

Question 6

Are income from National Savings Certificate or an ISA taxable?

Answer 6

No

Question 7

What incomes are exempt from income tax?

Answer 7

Winnings from Betting/gaming
The receipt of a gift/Inheritance
Income from ISAs/ NSC/ Premium Bonds/ Save as you earn interest/ Venture Capital trust dividends

Question 8

How is personal allowance calculated?

Answer 8

Calculated based on all total income (Non Saving/Savings/Dividend)

After £100,000 every £2 of income will reduce the PA by £1

Question 9

What is taxable income?

Answer 9

Total income minus personal allowance

Question 10

What is the starting rate for savings income?

Answer 10

First £5000 is taxed at 0% , if non savings income is equal to zero.

Every £1 of non savings income reduces savings income starting rate by £1.

Question 11

What is the bands for Personal savings allowance?

Answer 11

£1000, £500 or £0

Calculated based on Taxable income

£1000 = Basic rate tax payer 
£500 = Higher rate tax payer 
£0 = Additional rate tax payer

Question 12

What is the tax free allowance for dividends?

Answer 12

£2000 for all taxpayer regardless of their band

Question 13

Tax calculations, how should the income/expenses/deductions be rounded?

Answer 13

Rounded down to the nearest pound

Question 14

How should tax be shown in computations?

Answer 14

Tax should be shown to the nearest penny

Question 15

Scottish Income Tax is applicable to Non savings/Savings/Dividends?

Answer 15

False - Only applicable to non savings icnome

Question 16

How does income tax in Wales operate?

Answer 16

They follow the same tax rate as the UK however every 10p in every pound of tax goes directly to the Welsh Administration with the rest to the UK treasury.

Question 17

How is someone’s tax status determined for what country’s tax rate to use?

Answer 17

It is determined by where they live rather than where they work.