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Query in a question from the Finance Act 2014

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA TX-UK Exams › Query in a question from the Finance Act 2014

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by Tax Tutor.
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  • Author
    Posts
  • November 4, 2015 at 4:08 pm #280484
    disharani
    Member
    • Topics: 7
    • Replies: 8
    • ☆

    Hello Tutor,

    Please find below the question and answer for a problem given in the act

    EXAMPLE 4
    May was born on 19 December 1959. For the tax year 2014–15 she has a trading profit of £159,000. During the year May made net personal pension contributions of £32,000 and a net gift aid donation of £9,600. Her income tax liability is as follows:

    Trading profit 159,000
    Personal allowance (6,500)
    ______
    Taxable income 152,500
    ______
    Income tax:
    83,865 at 20% 16,773
    68,635 at 40% 27,454

    ______
    Tax liability 44,227
    ______

    • The gross personal pension contributions are £40,000 (32,000 x 100/80) and the gross gift aid donation is £12,000 (9,600 x 100/80).
    • May’s adjusted net income is therefore £107,000 (159,000 – 40,000 – 12,000), so her personal allowance of £10,000 is reduced to £6,500 (10,000 – 3,500 (107,000 – 100,000 = 7,000/2)).
    • The basic and higher rate tax bands are extended to £83,865 (31,865 + 40,000 + 12,000) and £202,000 (150,000 + 40,000 + 12,000) respectively.

    My query is when the higher rate band is extended to 202000, After 68635 @ 40%why dont we consider 49500(152500-202000) for 45% also for tax liability ?

    November 8, 2015 at 11:07 am #281111
    Tax Tutor
    Member
    • Topics: 2
    • Replies: 3965
    • ☆☆☆☆☆

    The taxpayer does NOT have 202,000 of taxable income!!
    The taxpayer has taxable income of 152,500 which has been correctly charged to tax through the revised basic rate band and the remainder within the higher rate band. Tax at 45% would only have been charged if May had taxable income in excess of 202,000 which she does NOT.

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