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Example 12
Thomas earned £160,000 trading profit in 2023/24 In the tax year he paid £6,400 to charity under the
gift aid scheme.
Calculate Thomas’s income tax liability for 2023/24.I have watched the recorded lecture where you answer this question but your answer from the recorded lecture does not match with the answer at the back of the book. Can you please help me? I’m having difficulty trying to understand the tax calculation.
This is all my working so far I’ve done everything else, just don’t understand how to calculate the tax liability.
Thomas Income Tax Computation 24/25
Non-savings income Total
£ £
Trading profit 160000 160000
Total income 160000 160000
Less: Personal Allowance (W1) 0 0
Taxable income 160000 160000Tax Calculation
Non-savings
45700 @ 20% 9140
??? @ 40%
??? @ 45%
160000
Income Tax LiabilityW1
Net income 160000
Less: Gross gift aid payment (6400*100/80) -8000
Adjusted Net Income 152000The Personal Allowance is reduced to nil as Adjusted Net Income exceeds £125140.
W2
Gross gift aid extends the basic rate band
37700 + (6400 * 100/80)
=45700Gross gift aid extends the higher rate band
125140 + (6400 * 100/80)
=133140W3
133140 – 45700
=87440
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