1) For the tax year 21/22, dill was paid a gross annual salary of 290000
2)n addition to her salary dill has been paid the following bonuses by herb plc:
Amount 16200 29300
3)Throughout the tax year 21/22, dill had the use of herb plc's company gym which is only open to employees of the company. The cost to herb plc of providing this benefit was 780
4) Throughout the tax year 21/22, herb plc provided dill with a home entertainment system for her personal use. The home entertainment system cost herb plc 5900 on 6 april 2021
5) During the tax year 21/22, dill's three-year old son was provided with a place at herb plc's workplace nursery. The total cost to the company of providing this nursery place was 7200 (240 days at 30 per day)
6) On 1 june 2021, herb plc provided dill with an interest-free loan of 80000 which she used to renovate her main residence. No loan repayments were made before 5 april 2022.
7) On 25 january 2022, herb plc paid a health club membership fee of 990 for the benefit of dill.
8) During the tax year 21/22, dill used her private motor car for both private and business journeys. The total mileage driven by dill throughout the tax year was 16000 miles, with all of this mileage reimbursed by herb plc at the rate of 25p per mile. However, only 14500 miles were in the performance of dill's duties for herb plc.
9) During the tax year 21/22, dill contributed tax relievable amount into herb plc's money purchase occupational pension scheme. the company also contributed 9000 on her behalf.
dill first became a member of a personal pension scheme in the tax year 20/21 and had an unused annual allowance brought forward of 19000.
For the tax year 21/22 dill's self-employed business made a tax adjusted trading loss of 58000. dill will claim relief for this loss against he total income for the tax year 21/22.
On 1 november 2021, dill received a premium bond prize of 1000.
On 28 february 2022, dill received interest of 1840 on the maturity of savings certificates from national savings and investments.
In the above question how to calculate the net income and adjusted income for note 9. In order to calculate net income employment income has to be calculated and the figure for note 9 to be included into the employment income calculation. But without knowing the figure for note 9 net income and adjusted income can not be calculated. So how to do it. The figures and the calculation of net income and adjusted income is not given at the back of the kit. I have worked through the examples and practice question in the notes.
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What are the requirements of the question - the answer must show the income tax computation upon which the figure of net income must also be given!
Once you have net income you can then compute adjusted income using the definition provided in the notes
The requirement of the question is to calculate taxable income. In order to calculate taxable income, net income adjusted income and employment income has to be calculated. But employment income can not be calculated without the adjustment in note 9. The adjustment in note 9 requires the figures for net income and adjusted income and the figures for net income and adjusted income can not be calculated without the figure in adjustment 9. Either the figure for adjustment 9 has to be given to calculate net income and adjustment income or the figures for net income and adjusted income have to be given to calculate adjustment 9. But none of them is given. So how to do it
You stated that the answer does not show how the figures are computed - I think that maybe you have not understood that answer or the definition of adjusted net income - if you copy the answer to me I will attempt to explain it to you.
dill- taxable income
Employment income
Salary 290000
Employer's pension contribution 0
Occupational pension contribution (14000)
Bonuses 45 500
Company gym 0
Home entertainment system 1180
Workplace nursery 0
Beneficial loan 1333
Health club membership 990
Mileage allowance (1625)
323378
Premium bond prize 0
Interest from savings certificate 0
Total income 323378
Less Loss relief (58000)
265378
Less Personal allowance (0)
Taxable income 264378
Pardon me for checking this issue but are you sure that Kaplan did not provide a calculation for the employee pension contribution of £14,000?
That figure must come from establishing that with an unused AA b/f of £19,000 and a restricted AA in 21/22 of the max £4,000 that this would give a figure of £23,000 of tax relievable contributions of which £9,000 has been used by the employer contributions leaving £14,000 of tax relievable contributions for the employee.
The problem however is that the adjusted net income figure does not exceed £312,000 so the AA for 21/22 is not £4,000.
It appears therefore that Kaplan have not updated the question correctly - I suggest you communicate with Kaplan quoting this question and checking if they have issued an errata sheet for the exam kit
The following working has been provided:
Occupational pension contribution:
As dill has adjusted income in excess of 312000 she is only entitled to an annual allowance for the tax year 2021/22 of the minimum amount of 4000.
The maximum contribution before incurring an annual allowance charge is therefore:
Brought forward annual allowance from 2020/21 19000
Current year annual allowance 4000
23000
Less Employer's contribution (9000)
Maximum employee contribution 14000
What I don't understand is that in order to calculate net income employee's occupational pension contribution has to be deducted from employment income but without knowing the figure of net income how can a figure for employee's occupational pension contribution be established in the first place.
The following working has been provided:
Occupational pension contribution:
As dill has adjusted income in excess of 312000 she is only entitled to an annual allowance for the tax year 2021/22 of the minimum amount of 4000.
The maximum contribution before incurring an annual allowance charge is therefore:
Brought forward annual allowance from 2020/21 19000
Current year annual allowance 4000
23000
Less Employer’s contribution (9000)
Maximum employee contribution 14000
What I don’t understand is that in order to calculate net income employee’s occupational pension contribution has to be deducted from employment income but without knowing the figure of net income how can a figure for employee’s occupational pension contribution be established in the first place.
When I asked you to send me the answer and queried that Kaplan should have provided workings then why did you not send me that critical working given in the answer - it would have saved me showing where the £14,000 figure in their answer came from, but I repeat my earlier comment which is that adjusted income does not exceed £312,000 and therefore the answer cannot be computed.
Your point about not knowing net income meaning you can't compute adjusted income to establish the tax relievable pension contribution means as again I originally suggested you don't fully understand the calculation of adjusted income
The figure of “adjusted income” is net income plus any employee contributions to occupational pension schemes which will have been deducted in calculating net income, plus any employer contributions to either occupational or personal pension schemes.
You are given the employer contribution so you need to compute the employee contribution - which you can ONLY do if the AA for this year is known which means that it would have to be either the maximum £40,000 or the minimum £4,000. It is clearly not £40,000 and it could only be £4,000 if you knew the adjusted income clearly exceeded £312,000 which in my previous reply I have stated that it does not.
Therefore the answer here cannot indeed be computed which is your query - and the answer given by Kaplan is therefore wrong.
It is a very silly numbers game being played in that question which should not have been set and most especially when the numbers provided do not work!
Can the figure of adjusted income be calculated without knowing the amount of employee contribution to occupational pension scheme
This is what I have explained above - look at the definition of adjusted income - it is effectively before deducting the employee contribution (whatever figure that may be) but you can only then compute the employee contribution if in this question the adjusted income figure was above £312,000 - which it is not!!
Why does the annual allowance have to be either 40000 or 4000. Why can't it be something in between. I mean if the adjusted income is lower than 312000, then a a tapered annual allowance can ben calculated and consequently employee contribution can be calculated
Given the evident and continuing problem you had understanding the basis of the adjusted income calculation and the fact that this was a silly numbers game being played in the Kaplan question, I attempted to bring this issue to a close, having already spent far too much time dealing with it, by simplifying it to either of 2 scenarios.
If you are now comfortable with the process that is fine but please note this will be the last time I come back to this question.
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