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Ok, something is bugging me and it will be something very simple but i can’t work out what i am doing wrong.
EXAMPLE 2
Ingrid was born on 29 May 1973. For the tax year 2013–14 she has a salary of £37,000, building society interest of £800 (net) and dividends of £9,000 (net). Her income tax liability is as follows:Employment income: £37,000
Building society interest (800 x 100/80) £1,000
Dividends (9,000 x 100/90) £10,000
______
48,000Personal allowance
(9,440)
______
Taxable income
38,560
______
Income tax:
28,560 at 20% – £5712
3,450 at 10% – £345
6,550 at 32.5% – £2129
______
Tax liability 8,186Here is the question:
Why is the first tax of 20% only on the first £28,560? I assumed that her salary was £37,000 – therefore £37,000 deduct the personal allowance of £9440 leaves £27,560. I would then tax that figure at 20% to give a figure of £5512.
Why has this question only deducted £8440 from the salary instead of the full £9440? Where has the other £1000 gone?
Hi,
Here are my calculations based on the below question,
EXAMPLE 2
Ingrid was born on 29 May 1973. For the tax year 2013–14 she has a salary of £37,000, building society interest of £800 (net) and dividends of £9,000 (net). Her income tax liability is as follows:Employment income: £37,000
Building society interest (800 x 100/80) £1,000
Dividends (9,000 x 100/90) £10,000
______
Salary
£37,000 – £9,440 = £27,560
Tax at 20% = £5,512Savings £1,000
Tax at 20% = £200Lower rate band remaining £37,000 – £9,440 – £32,010 = £4,450
£4,450 less savings income £1,000 = £3,450 lower rate band remainingDividends £10,000 (including £1,000 tax credit)
£3,450 x 10% = £345
£6,550 x 32.5% = £2,128.75
Total Tax = £2,473.75
Less tax credit (£1,000) = £1,473.75Summary
Tax on employment £5,512
Tax on savings £200 (less £200 deducted at source) = 0
Dividends £1,473.75Total tax paid £6,985.75
Why is the first tax of 20% only on the first £28,560? I assumed that her salary was £37,000 – therefore £37,000 deduct the personal allowance of £9440 leaves £27,560. I would then tax that figure at 20% to give a figure of £5512.
in response to your question
37,000 – 9,440 = £27,560 + (savings £1,000) = £28,560.
They should have shown this separately rather than combining.
Actually, it’s 20% on £27,560 for non-savings income (salary – full PA) + 20% on the savings income of £1,000 (gross), which have been combined into a single 20% on £28,560 in total. They just put it that way 🙂
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