ACCA paper F6 UK Basic Income Tax computation | PAYE, Exempt income & Charitable giving | Example

Example 4

Peter who is single and earns £51475, made gift aid payment totaling £1960

Required

His income tax liability

Solution

Net income Less: PA Taxable income	51475 (6475) 45000

		£
Income tax	£39850 (W) £5150 × 40%	7970 2060 10030

Working

His basic rate band is extended by the gross gift aid payments £37400 + (£1960 × 100/80)= £39850

ACCA paper F6 UK Basic Income Tax computation | PAYE, Exempt income & Charitable giving

PAYE

Pay as you earn (PAYE) is the system used for collecting income tax and national insurance at source from the earnings paid to the employees.

Exempt income

The following are the main categories of exempt income

·         Interest on national savings certificates

·         Interests on repayments on overpaid income tax or capital gain tax

·         Redundancy payments

·         Scholarships or bursaries

·         Wages in lieu of notice

·         Interests and dividends from individual savings account (ISAs)

·         Child benefits

·         Betting and gamming winnings

·         Some social security benefits

Charitable giving

Gift aid scheme is a tax efficient way of giving money to charity. Under this scheme, the payment to the charity is treated as if basic rate tax has been deducted from source. The payment is grossed up by 100/80.

Tax relief is given by extending the basic rate tax band by the gross amount of the contribution.

ACCA paper F6 UK Basic Income Tax computation | Tax reliefs & Qualifying interest payments | Example

Example 3

Anwar and Barry each have total income of £50000 none of which is savings or dividend income. They made the following payments during 2009/10.

·         Anwar made interest payments during the year totaling £2000 on a loan on his mortgage for his principal private residence.

·          Barry made interest payments of £2000 on a loan to invest on a partnership in which he is a partner.

Calculate the income tax liability for Anwar and Barry for 2009/10.

Solution

Income tax computation 2009/10

	Anwar	Barry
	£	£
Total income Less Reliefs: Qualifying interest paid Net income Less: personal allowance Taxable income	50000 50000 (6475) 43525	50000 (2000) 48000 (6475) 41525

Income tax	£	£
Basic rate Higher rate Income tax liability	37400 6125 43525	37400 4125 41525	× 20% × 40%	7480 2450 9930	7480 1650 9130

ACCA paper F6 UK Basic Income Tax computation | Personal allowance & Personal age allowance | example 2

Calculate the age allowance in the following situations.

At the end of 2009/10:

·         Dennis will be 71 and has a net income of £23750

·         Nora will be 90 and has a net income of £25400

·         Peter will be 80 and has a net income of £30900

Solution

	Dennis	Nora	Peter
Age at the end of tax year:	71	90	80
	£	£	£
Personal age allowance Less: Restriction 50% × (23750-22900)                                50% × (25400-22900)                                50% × (30900-22900) Personal age allowance	9490 (425) 9065	9640 (1250) 8390	9640 (3165) 6475