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Sarah’s income for the year:
Trading profit- 164,000
Bank interest recieved- 8,000
Dividends recieved- 4,950.Sarah paid 16,000 (net) into her personal pension scheme.
Calcluate Sarah’s income tax liability.
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So sarah’s total taxable incomoe is 179,500
and will be taxed as follows:-
NSI- 54,370@20%
109,630@40%SI 10,000@ 40 %
DI- 5,500@ 32.5%.
Right?
The answer in the kit charges SI at both 40% and 50% (6,000@40% & 4,000@50%)
and the DI as 5,500@42.5%.Can someone kindly explain me why?
Thanks.
The gross amount of personal pension contribution not only extend the basic rate but also the higher rate band.
Now that the new extended higher rate band is £170000, £6000 of the SI ll be taxed at 40% (£164000 + £6000 = £170000)
and the rest at 50%.
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