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#20 George (from OT lecture notes).

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA TX-UK Exams › #20 George (from OT lecture notes).

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by Tax Tutor.
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  • Author
    Posts
  • August 24, 2018 at 2:25 pm #469244
    blaneread
    Member
    • Topics: 2
    • Replies: 0
    • ☆

    Hi, please can you advise re #20 George (from OT lecture notes).

    I can’t see how this is calculated: “Note 2 Osbourne has an adjusted net income of £110,000 (200,000 – 90,000) which exceeds £100,000 and thus his personal
    allowance will be reduced by £5,000 ((110,000 – 100,000) / 2).” Is the adjusted net income not £210,000? Making his person allowance £1500? Please confirm if this is an error, or I have made a mistake?

    Thanks, question and answer below for reference.

    QUESTION
    (a) George is employed by Exchequer plc earning an annual salary of £100,000 and has made the following gross personal pension
    contributions since first joining a scheme in June 2015:
    2015/16 £28,000
    2016/17 £23,000
    During 2017/18 he made a cash payment of £48,000 into the pension scheme and wishes to know whether tax
    relief will be available in full on this amount and what will be the maximum contribution he will be able to make in
    2018/19 for which tax relief will be available without incurring any charges.
    (b) Osbourne is an employee of Chancellor plc with an annual salary of £170,000pa. He has made regular annual gross personal
    pension contributions of £60,000pa other than in 2016/17 when his gross contributions were only £10,000. In 2017/18 Osbourne
    has made gross personal pension contributions of £90,000.
    Compute Osbourne’s Income Tax liability for 2017/18.

    ANSWER
    (b) Osbourne – Income Tax Computation 2017/18
    £
    Employment Income 170,000
    Annual Allowance Charge (note 1) 40,000
    210,000
    Personal Allowance (note 2) (6,500)
    Taxable Income 203,500
    Income Tax Liability
    123,500 @ 20% 24,700
    80,000 @ 40% 32,000
    203,500 56,700
    The basic and higher rate bands are extended by the gross amount of personal pension contributions (33,500 + 90,000) = 123,500
    and (150,000 + 90,000) = 240,000
    Osbourne has employment income of £170,000pa and hence all of the £90,000 pension contribution will attract tax relief.
    Note 1 Osbourne with employment income of £170,000pa has a tapered annual allowance for 2017/18 and 2016/17 of £30,000
    (40,000 – ((170,000 – 150,000) / 2) and therefore £20,000 (30,000 – 10,000) brought forward unused allowance from 2016/17.
    Therefore an Annual Allowance Charge will arise of £40,000 (90,000 – 50,000)
    Note 2 Osbourne has an adjusted net income of £110,000 (200,000 – 90,000) which exceeds £100,000 and thus his personal
    allowance will be reduced by £5,000 ((110,000 – 100,000) / 2).

    August 26, 2018 at 5:30 am #469441
    Tax Tutor
    Member
    • Topics: 2
    • Replies: 3965
    • ☆☆☆☆☆

    Many thanks for bringing this to my attention as the answer has not been properly updated from the previous year’s example when the employment income was 200,000 and the method of computation then shown was different! My apologies!
    So the answer will be updated in the online notes but the adjustments will be as follows:

    Employment Income 170,000
    PA (note 1) (11,500)
    Taxable Inc 158,500

    Tax
    BR 123,500 (note 2) x 20% = 24,700
    HR 35,000 x 40% = 14,000
    AA Charge (note 3) 40,000 x 40% = 16,000
    Tax Liability 54,700

    note 1 Adjusted net income = 170,000 – 90,000 = 80,000 which does not exceed 100,000 and therefore no restriction in PA
    note 2 BR and HR bands increased by 90,000 as per original answer
    note 3 Computation of AA Charge as per original answer

    Please check through above and come back to me with any further queries and once again thank you for alerting me to this!

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