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Hi,
Please can anyone clarify when you are meant to increase a tax band for gift aid/pension and when you are meant to deduct from net income?
Many Thanks!
The gross amount of gift aid payments and personal pension contributions may have 2 effects on the income tax computation.
Firstly as per OT course notes, section 3, chapter 2, they are deducted from net income in deriving adjusted net income to determine whether the personal allowance (standard or higher age allowance) should be reduced.
Secondly the gross figures should be added to the basic rate and higher rate band limits before computing the tax on the taxable income of the taxpayer (see section 5, chapter 2) so that if a taxpayer paid £8,000 into personal pension scheme, the gross amount of £10,000 would increase the basic rate band limit from 32,010 to 42,010 and the higher rate band limit from 150,000 to 160,000.
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