2. Basic income tax computation

Question 1

List what a basic income tax computation looks like.

Answer 1

Trading income X
Employment income X
Property income X
Pension income X
= Non-savings income X

Savings income:
- Building society interest X
- Bank interest X
Dividends X

Total income X
Less: reliefs (X)

Net income X
Less: PA (X)

Taxable income

Question 2

What income is exempt from income tax? (3)

Answer 2

• Interest from National Savings and Insurance (NS&I) certificates
• Income received from an individual savings account (ISA)
• Gaming, lottery and premium bond winnings.

Question 3

When is your personal allowance reduced?

How is this calculated?

Answer 3

PA is reduced when adjusted net income (ANI) exceeds £100,000.

net income X
gross gift aid (X)
gross pension cont. (X)
= ANI

PA reduction: 50p for every £1 over £100,000

Question 4

Marriage allowance

To who does this apply?
What amount is sacrificed and received?

Answer 4

Only applies if both parties are basic rate tax payers (neither total income exceeds £37,500)

Capped at 10% sacrifice (£1,250) of which benefitting party receives 20% of this (£250).

Question 5

What is the difference between a tax liability and tax payable?

Answer 5

A tax liability is before PAYE; it is the amount due

WHEREAS

tax payable is after PAYE; it is the amount that is left to be paid.

Question 6

What are qualifying interest payments?
Where is it deducted?
What must they be against?

Answer 6

They are interest payments that provide tax relief.
Deducted in reliefs after total income.

Must be against:

• Purchase of plant and machinery by an employed person for use in employment
• Purchase of shares in the company that they work for by a full time employee.

Question 7

How does an individual receive tax benefits from the gift aid scheme?

Answer 7

• Individual pays 80% of the donation and the other 20% is collected from HMRC.
• Tax brackets are extended by gross donation.

Question 8

How is the child benefit tax charge calculated?

Note: how should this be rounded?

Answer 8

If either parent/partner in household has income exceeding £50,000, they are charged 1% of original child benefit for every £100 earnt over £50,000

Round down.

Question 9

What are the tiers in the sufficient ties test?

Answer 9

1. Family: marriage and children under 18.
2. Accommodation
3. Work
4. Days in UK: more than 90
5. Country: spends more time here than any other country.