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Income Tax Liability Question

Forums › ACCA Forums › ACCA TX Taxation Forums › Income Tax Liability Question

  • This topic has 2 replies, 3 voices, and was last updated 10 years ago by Magdalena Pavlova.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • November 10, 2014 at 12:48 pm #208794
    Osanne
    Member
    • Topics: 1
    • Replies: 2
    • ☆

    Dear Sir,

    I am doing a question from the BPP revision kit but I am having an issue. Below is the question:

    Lauren’s father, Tom, a widower, who was born in 1944, has the following income for tax year 2013/14.
    State retirement pension 4,926
    Pension from former employer (before deduction of PAYE) 7,890
    Building society interest (net interest credited) 14,320
    Tom gave £3,200 to Oxfam (a registered charity) on 21 September 2013 under Gift Aid. This was the actual amount paid.

    Required
    Calculate Tom’s income tax liability for tax year 2013/14.

    Answer:

    Non-savings Savings Total
    income income
    £ £ £
    State pension 4,926
    Employment pension 7,890
    BSI (14,320 × 100/80) 17,900
    Net income 12,816 17,900 30,716
    Less higher personal allowance (W)(10,192) (10,192)
    Taxable income 2,624 17,900 20,524

    Tax £
    On Non-savings income
    £2,624 @ 20% 525
    On Savings income
    (£2,790 – £2,624) = £166 @ 10% 17
    (£17,900 – £166) = £17,734 @ 20% 3,547
    Income tax liability 4,089

    Working
    Higher personal allowance £ £

    Higher personal allowance
    born between 6 April 1938 and 5 April 1948 10,500
    Net income 30,716
    Less Gift Aid £3,200 × 100/80 (4,000)
    26,716
    Less limit (26,100)
    616
    ÷2 (308)
    Revised higher personal allowance 10,192

    Regarding the tax calculations can you tell me the reason for multiplying the 10% by 166. I cannot seem to figure out where this figure is coming from.

    Thanks you.

    November 10, 2014 at 1:17 pm #208809
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 1
    • ☆

    Savings income starting rate:

    There is a tax rate of 10% for savings income up to £2,790 (the savings income starting rate limit). This rate is called the savings income starting rate
    .
    The savings income starting rate only applies where the savings income falls wholly or partly below the starting rate limit. Remember that income tax is charged first on non-savings income. So, in most cases, an individual’s non-savings income will exceed the savings income starting rate limit and the savings income starting rate will not be available on savings income.

    BPP Text : Page 28 (7.1.1)

    November 10, 2014 at 7:48 pm #208902
    Magdalena Pavlova
    Member
    • Topics: 0
    • Replies: 1
    • ☆

    Dear All,

    I have a question regarding the same exercise mentioned from Osanne. Is the Gift Aid deducted from the Personal Allowance, because of the higher rate (higher PA of 10 500)? Because, in another exercise, the Basic rate limit was increased by the gross amount of the Gift Aid payment (i.e Gift Aid 1000 => 32010 + (1000*100/80)

    Thank you in advance.

  • Author
    Posts
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