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In bpp revision kit question 109 there is some gift aid of $5000 so in calculations I increased basic rate to $38500 but to increase higher rate the answer did the following
$150,000 + $5000 – $38500 but this effectively cancels out the gift aid increase. Why is not
$150,000 +$5000 – $33500The higher band would have been $116500 without the gift aid.
It doesn’t make sense to me why would we deduct $38500
Thank you for your work 🙂
You extend both the basic rate band (BRB)and higher rate band limits HRB) by the same amount – the gross amount of gift aid payment – therefore the amount of taxable income within the higher rate band must remain the same – 116,500.
The effect is that 5000 more of the taxable income falls within the basic rate band instead of the higher rate band and equally 5000 more of the total taxable income then falls within the higher rate band instead of the additional rate band – have you watched the lectures on chapter 2 and worked example 14?
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