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Correct marginal rate (meaning)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA TX-UK Exams › Correct marginal rate (meaning)

  • This topic has 1 reply, 2 voices, and was last updated 7 months ago by JillyB.
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  • September 21, 2024 at 12:19 pm #711622
    menpagalhoon
    Participant
    • Topics: 72
    • Replies: 35
    • ☆☆

    In the Bpp textbook, it is written:

    Employee contributions to occupational pension schemes get tax relief under ‘net pay arrangements’ where the employer deducts the employee’s gross pension contribution before applying pay as you earn (PAYE).

    This gives the employee tax relief at the correct marginal rate (ie starting with the highest rate ) of tax without the need to make any additional claims.

    I am sorry for asking such basic questions but I find the language used in the textbook a bit hard.

    What is the meaning of “correct marginal rate?”

    Another question: the employer, in his income tax computation, deducts employee’s gross pension contribution while computing taxable income, right?

    But the employee doesn’t deduct this while working out the income tax computation….

    September 23, 2024 at 9:51 am #711656
    JillyB
    Keymaster
    • Topics: 0
    • Replies: 899
    • ☆☆☆☆

    If you work for someone then you can make pension contributions from your salary and it’s taken by the employer before it’s taxed and you receive it.
    Therefore you get relief at all the rates – whatever rate you pay tax at.

    Read the OT manual – it’s easier to understand

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