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Q Philips and charles are father and son . The following information is available for the tax year 2015/16
philip wind
philip retired early at the age of 55 . During the tax year 2015/16 Philip received pension income of £13500 and building society interest of £14600(gross amount).charles wind
charles is self-employed and his tax adjusted trading profit for the year ended 31 december 2015 was £109400during the tax year 2015/16 charles made a gift aid donation of £800(gross) to a national charity
charles has been a member of a registered personal pension scheme since May 2013 .
He made a gross contribution of £25000 in the tax year 2013/14 but has not made any subsequent contributionQ 1 If charles had made a payments of £6880 into a personal pension scheme during the tax year 2015/16 which of the following statements are correct?
(1)His basic rate band for the tax year 2015/16 would have been £40385
(2)His taxable income for the tax year 2015/16 would have been reduced by £8600
(3) HM Revenue and Customs would have paid £1376 into the pension fund on his behalf
(4) His tax liability at the 40% rate would have been £3440 lower in the tax yeatr 2015/16
ans 1 & 4 how did it get answer 4
I saw your post on the exam results forum for F6 and I have written a note on the same forum to try and help students who like you have had a disappointing result. It also suggests that where a mark such as yours was scored there are fundamental knowledge problems that exist which require you to go back to the lectures and notes provided.
For the last sitting you asked a considerable number of questions many of which were about past exam questions but what you were asking identified that you did not understand the basics of the topic being tested – I suggested then and I suggest again now that if you are to succeed in this exam you must improve your basic knowledge by reference to the lectures, notes and examples provided and only then attempt past exam questions – you are trying to run before you are able to walk!
In reference to this example what I wanted to see was how you attempted it, to identify the problems that you have, so please do your answer to this – we know it will be wrong but I need to see what you are doing to be able to put you right!actual
trading profit 109400
personal allowance 6300
taxable income 103100income tax
32585*20%=6357
70515*40%=28206
it liability =37403new
trading profit 109400
pa 10600
taxable income 98800income tax
40385*20%=8077
58415*40%=23366
income tax liability=29723Thank you for showing your answer. In the first part of your answer you have correctly computed the revised PA and extended the BR band for the gift aid payment. With the inclusion of the gross PPC of 8,600 you have again correctly computed that the PA will remain at 10,600. The issue, however then is about both your calculation of the extended basic rate band and from what you tell me is also the model answer calculation!
Your answer and also option 1 in the question is 40,385 – which is of course 31,785 + 8,600 – but this ignores the gift aid payment of 800 gross so is wrong as far as the question info that you wrote above is concerned.
As far as the other answer (option 4) is concerned then that is simply the gross PPC of 8,600 extending the BR band and therefore removing 8600 from higher rate band at 40% = 3,440
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