in some questions , pension and G.A.D are deducted from net income , and in some other questions just extend the basic rate band.
what is the exact rule for answering the exam questions ?
are they depend on amount of net income ?
thanks in advance?
In terms of the pension, my understanding is that an “occupational” pension is deducted from salary, and does not attract any tax relief. A “private” pension extends the bands (not just the basic rate band) by the gross contribution. The gross contribution is calculated by multiplying the net contribution by 10/8.
Gift aid donations are treated in the same way as private pension contributions. The above applies only to individuals, not companies. For companies, the gift aid donation is deducted from total profits, and no need to gross up.
Occupational pension scheme contributions gain tax relief by indeed being deducted from employment income and in so doing thus reduce net income.
Personal Pension Contributions (PPC’s) do not get deducted in deriving net income but instead in their gross form (amount paid x 100/80) will extend both the taxpayer’s basic and higher rate tax bands. In addition in computing any restriction in the standard Personal Allowance (PA) or age PA the gross sums are deducted in deriving the “adjusted net income” figure for this purpose.
Gift Aid donations are treated the same way as PPC’s and donations under the payroll deduction scheme are treated the same way as Occupational Pension Scheme contributions.
(see chapter 2 sections 4, 5 and 7 for detailed notes)
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