# Income tax computation Example 7

### Problems with notes or lectures?

1. tax liability

2. i can hear the leture but can’t see the working

3. These lectures are wonderful, My question is concerning the starting rate on saving income : If the starting rate applies and is used by both non-savings and savings income and the balance of the savings income falls within the basic and higher rate bands, does the balance start from the beginning of the basic rate band ie, 1-35000 or does the basic rate band include the starting rate of 2560-35000?

• @mustpass, As far I understand from your question.

Well, Suppose your Non-Savings Income is 30,000, Savings Income of 10,000.
The Tax will be calculated as follows:

Non-Savings Income: 30,000 x 20%= 6000. ( Basic Rate 1-35000)
Savings Income: 5000 x 20%= 1000
5000 x 40% = 2000

Tax Liability= 6000+1000+2000 = 9,000.

Well, It is the cumulative figure.
( Cummulative means: 30, 0000 + 10,000= Total is 40,000 )
Basic rate means 1-35,0000 ( 20 % ), Higher rate 40%.
So, 30, 000 already used by N/S,
( 35.000-30,000= 5000) This 5000 is un-utilised, we can use this at basic rate.
And remaining 5000, will belong to higher rate i.e 40%.

I hope that helps.

4. Nobody’s explaining why it’s advisable to, at the stage of allowing for tax credits to get tax payable, start with dividends first. Superwoman just said to follow without asking why. Just inquisitive…. maybe a case where taxpayer could suffer if done otherwise could help explain this issue.

• @crye, Not sure if this is a bit late for you crye but in case anyone else has the same question…

Dividends represent the distribution of the taxed trading profits of a company to it’s shareholders. In recognition of this HMRC issues a 10% tax credit to the shareholder (to reduce what is in effect a kind of double taxation) negating the 10% band of dividend tax, and reducing the effect of the higher and additional rate band to 25% and 36.1% respectively.

As such, the taxpayer has not actually had any tax deducted at source on this income so no refund would be receivable from HMRC should this reduce the tax payable below zero. And so, to take full effect of this tax credit, this should be deducted before taking other forms suffered at source into account, as these would then generate a refund on tax should they push tax payable below zero. In effect the other items are being deducted from the taxpayers actual earnings by an intermediary and remitted to HMRC on their behalf.

Hope this helps

5. I can hear the lecture,but i cant see anything!!
I could use some help.. thanx

• without looking at the lecture, my guess is, the tutor does not write anything in this video on the screen

6. I can hear the talking but I cannot see or watch what the lecture is doing on the board. I need help.

• the lecturer does not always writes on the screens, sometimes it’s just a lecture / chat

7. This site is amazing. I can’t thank you enough!

8. why did the paye increase from by £200 to £5705?

• @alia2012, do you mean in example 7? they have PAYE deduction of £5,705, given in the question but the £200 tax at source is on the Dividend income, as per the original gross up calculation – (2000*100/90)?

• @fjones87, (i think anyway!) :-/

• @alia2012, £200 is TDS also £2400 is TDS which is to be less at the end from Tax liability as Tax Credit. Bcoz tax is already deducted from Dividends and Saving Income resp.
I hope it helped.

• @alia2012, Also, PAYE is the tax paid on employment Income. It is to be deducted from Tax Liability as it is paid already i.e £5705.