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Hi,
In the income tax computation, I was wondering if there was any logical reason for still deducting the PAYE charged in the tax payable computation. Unlike the savings and dividend incomes, you add the tax at source (by grossing up), then you deduct it when computing tax payable. But for the PAYE, it seems deducted twice.
Lastly, in computing tax payable, for tax credits, do you multiply by 10%, the gross or net figure? and what does it mean by it not being repaid.
I will appreciate your kind assistance.
The salary figure you include in the computation is the GROSS salary not the net!
The percentage tax credit depends on the type of income – it is a 10% tax credit on dividend income but a 20% tax credit on bank interest. The 10% credit on dividend income is a notional tax credit as no tax has been deducted by a company on any dividend paid so as no tax has been paid over to HMRC it cannot rank for repayment!
On bank interest however the bank has deducted 20% tax from the interest due to the taxpayer and then paid this over to HMRC so if overpaid it will rank for repayment.
Have you listened to the lecture?Thank you. I have listened to the lecture now. I was just reading my study text initially.
I have another question please. This time on gift-aid
Q. In an example on the open tuition lecture (example 17) where there was net income of £106,000 and gift aid of £4,800 (net). Because the Net Income was above £100,000, it was adjusted by deducting the gross gift aid amount, this gave a result of £100,000. therefore, the standard PA of £10,000 was used. My question is, after establishing the standard PA, on the income tax computation, why was the Net Income not changed to the ANI (from £106,000 to £100,000) before the PA was deducted to get the taxable income? Instead, it was (£106,000 – £10,000) as opposed to (£100,000 – £10,000). I hope my question is clear?You need to carefully read section 5 in chapter 2 of the notes that precede the example you quote that states how both basic rate and where necessary higher and additional rate relief is given for gift aid payments and where it also states that gift aid payments are NOT deducted in deriving Taxable Income on the face of the income tac computation itself.
Thank you very much. I totally understand that now.
I have some questions on Benefits taxable on P11D employees.
Q1. I need more clarification on how the P11D dispensation works. If the employer reimburses the employee for travel, and the employee makes a claim to HMRC to treat it like an expense, does that mean that the expense is now treated as business related and therefore deducted? and when the dispensation is obtained, HMRC will automatically treat it as a relief?Q2. Please explain what it means by “if the accommodation is job related, the taxable amount is restricted to a maximum of 10% of the employee’s net earnings”. I don’t understand the net earnings.
1. The dispensation means that the employer no longer has to list out these amounts on the P11D form as benefits provided to the employee and the employee does not then have to show them as allowable deductions – they are simply ignored!
2.This puts a limit on what the maximum assessment can be in relation to expenses incurred by the employer in relation to the job related accommodation and to the provision of furniture and furnishings. The maximum assessment is 10% of the net employment income assessment for the taxpayer excluding these items.Please I have questions on the answers
1 (continued). Is it ignored when the employer reimburses exactly the amount owed to the employee? What about a case where the employer reimburses more or less and they have this dispensation, how will it work?Good day,
I have some question under Pensions:
Q1. I don’t understand what it means by the ‘pension benefits vested’.
Q2. If the pension contribution is more than the tax payer’s earnings, what is the scenario if a) you have unused allowances, and b) you don’t have unused allowances?
Q3. Is the excess pension income charged to the income tax computation as Pension Income under the Non-Savings Income?
Thank you.
Reimbursement means giving back to the employee exactly what he has spent on allowable expenses NOT more or less!
Pension questions:
1. When the taxpayer takes his pension
2 and 3. If pension contributions exceed the relevant earnings of the tax year we then use up unused allowances of the preceding 3 tax years. If there are insufficient unused allowances then an Annual Allowance (AA) Charge arises for the difference and this is shown as an AA charge on the Income tax computation and is taxed as non savings income.Thank you very much.
I have some questions under property income:
Q1. I don’t understand the situation where the landlord has more than 1 FHLs in relation to the 105days rule
Q2. I don’t understand how it helps the taxpayer to claim to ignore the rent-a-room exemption
I am looking at the rates and allowances of a specimen June 2015 exam question paper and under the NIC limits, there is a ‘small earnings exemption limit’ of £5,885 which was not talked about in the open tuition NIC lecture. But from my understanding, it means that what ever the figure you get after calculating Class 2 contribution, £5,885 should be deducted and treated as tax free. Is that correct please?
Re Property Income
Q.1 What situation are you referring to?Q.2 If taxpayer has £3000 of rental income and £4000 of property expenses the rent a room exemption would simply exempt the income as it is less than 4250. The normal basis would however give rise to an allowable loss of £1000. If rental income was £6000 and property expenses were £5000 the rent a room relief would give an assessment of £1750 (6000-4250) but the normal basis would give an assessment of only £1000 (6000-5000)
Class 2 NIC No, sorry your statement is not correct – it simply means that if the ACCOUNTING profit does not exceed the small earnings exemption limit there is NO
class 2 NIC to payHello,
Under Capital Allowance, If FYA is only available on new cars with Co2 emission up to 95g/km, what about a second hand car with Co2 emission less than 95g/km?
Thank you.
Please I have a few questions:
Q1. What is the difference between a National Savings Bond and National Savings Certificate because it says the certificate is tax exempt while the bond is not.
Q2. Please confirm if I am correct, one of the qualifications of deductible interests are “interests from loan to purchase plant and machinery for business use by the employee”, then the cost of Plant and Machinery provided for business use will be treated as Capital Allowance. So, in computing the Net Income you deduct the interest on the loan while in computing the trading income you compute the capital allowance and deduct from the taxable trading profit. Am i correct or wrong?
Q3. Under Pension Contributions – the limit of £3,600, does that mean that an unemployed individual is allowed to contribute and gain tax relief up to the £3,600?
Q4. Under business expenditure in tax adjusted trading profit, it says “interest paid on borrowings for trading purposes is allowable” while “Reliefs, such as qualifying loan interest payments are not allowable”. What is the difference. It sounds the same to me
Dear Sir,
In case of loss on ceasation how to know if it state the more beneficial way, does it mean if we need to take into account not to waste personal allowance or to offset losses on priority?
Thank you,
Avinash.Hi,
Q1. Is a Van categorised as ‘Machineries’ when computing Capital Allowance?
Q2. Under the calculation of capital allowance, how do you deal with disposals in the main, special rate pool and non-pool asset? do you deduct the proceeds from the disposal 1st from the total additions before you compute the WDA, or you compute the WDA of the total additions in the columns 1st, then deduct the proceeds.
Re Capital Allowances:
Q.1 A van is treated as normal plant and machinery for which AIA will be available
Q.2 You just need to look at chapter 5 of the OT course notes to answer this question!!Re losses on cessation – not certain about your question but losses should always be used in the way that most benefits the taxpayer and this would normally be measured by which use achieves the highest tax saving
Re “few questions”
Q.1 There are various National Savings and Investment products that exist of which NS&I certificates are specifically exempt
Q.2 The interest payments are indeed deductible from total income but the capital allowance will be deducted from the employment income as there is no trade being carried on
Q.3 Every individual has an allowable level of gross contributions of 3,600 whether unemployed or indeed a new born baby that may be paid by them or on their behalf
Q.4 Qualifying loan interest is deductible from total income on the personal computation and these items are specifically defined in chapter 2, whereas interest on trading loans taken out are specifically deductions from trading profit NOT from total incomeHello,
Please when where in your income tax computation do you add child benefit tax charge? Is it after you compute taxable income or you add it to your income tax liability figure
Hi,
Please can you answer the following:
Q1. In computing a tax adjusted trading profit, when a trade debt is written off but luckily it gets paid back years later. Is it allowable or disallowable?
Q2. From the steps given, in computing the trading income for a company that has ceased operations, why is it necessary to calculate the penultimate trading income?
Q3. in the cash basis for small business, what happens when you sell a car and get proceeds from the sale?
Q4. Pension Income – calculating the AA, if your trading income is £250,000, and your occupational contribution for 2014/15, is £70,000, and you have previous total unused allowances of £30,000. Will you still be liable to an annual allowance charge in 2014/15? or the unused balance from pervious 3 years would have used up the balance £30,000 (£70,000 – £40,000)?
Firstly apologies for having missed the first of the 2 questions above – I had not noticed that we were now on to page 2!
The child benefit tax charge is added in deriving the income tax liability (chapter 2 section 7, page 16)
Q.1 If a trade debt was w/off then tax relief would have been given, hence when that debt is later recovered it would be treated as taxable income
Q.2 By establishing your normal CYB assessment for the penultimate TAX YEAR it means that any remaining trading profit(s) after that date will be assessed in the final tax year, as then of course reduced by any overlap relief
Q.3 The proceeds are ignored (chapter 6 section 7, page 45)
Q.4 If you have trading income you will pay personal pension contributions NOT occupational – only employees may be in an occupational scheme.
If you have unused allowances from previous 3 years of 30,000 then that may be added to the current year AA of 40,000 to give an allowable level of gross contributions amounting to 70,000. Only if contributions went above 70,000 would there be an AA charge
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