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ACCA - Skill Level Paper - F6 (UK) Income Tax Computation
ACCA - Skill Level Paper - F6 (UK) Income Tax Computation
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Savings Income
Example 2
• This supplements an existing 0% starting rate of tax that is
however ONLY available if the taxable savings income falls Billy had a trading profit of £26,000 and received
within the first £5,000 of total taxable income
bank deposit interest of £20,000 in 2017/18.
• Savings income is taxed using the same rates as non-savings
income listed above, but the starting rate of tax of 0% will
apply to the first £5,000 of taxable savings income where the Calculate Billy’s income tax payable in 2017/18.
taxable savings income falls within the first £5,000 of the
total taxable income.
• If therefore the first £5,000 of taxable income consists of
non-savings income then the 0% rate will not apply
• If applicable the starting rate is applied first to taxable savings
income followed by the savings income nil rate band if
available and thereafter the normal rates
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Calculation of tax on all savings income and all dividend income Example 4
1. Interest received (including interest received gross) is included in the
saving income column of the computation, dividends received are
included in the dividend column Daisy received a salary of £29,500 (PAYE £2,951),
2. Any deductions in the income tax computation (personal allowance received £10,000 bank deposit interest and dividend
and/or reliefs) are deducted first from non-savings income, then income of £16,000 in 2017/18.
savings income, then dividend income hence the order in which the
analysis columns are listed
3. Non-savings income is treated as the first slice of taxable income to Calculate Daisy’s income tax payable for 2017/18.
be taxed followed by savings income then dividend income. The
total of this tax is the Tax Liability of the taxpayer
4. Tax suffered at source is deducted from the tax liability in order to
arrive at tax payable
5. If there is no liability, the tax suffered on PAYE may be repaid
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Daisy Income Tax Computation 2017/18 Daisy Income Tax Computation 2017/18...continued
Tax calculation:
Non-savings Savings Dividends Total
Non Savings
£ £ £ £
18,000 @ 20% = 3,600
Employment Income 29,500 29,500
Savings
Bank intrst 10,000 10,000
500 @ 0% (NRB) = 0
Dividends 16,000 16,000
9,500 @ 20% = 1,900
Total Income 29,500 10,000 16,000 55,500
Dividends
Less: Personal Allow (11,500) (11,500)
5,000 @ 0% (NRB) = 0
Taxable income 18,000 10,000 16,000 44,000
500 @ 7.5% = 38
10,500 @ 32.5% = 3,413
Income Tax liability 8,951
Less tax deducted @ source: PAYE (2,951)
Income Tax Payable 6,000
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Mike Income Tax Computation 2017/18 Mike Income Tax Computation 2017/18
Non-savings Total
£ £ Income Tax calculation:
Employment income 108,000 108,000 Non Savings
Total income 108,000 108,000 33,500 @ 20% = 6,700
67,000 @ 40% = 26,800
Less: Personal Allowance (W1) (7,500) (7,500)
Taxable Income 100,500 100,500 100,500
Income Tax Liability 33,500
(W1) Less: Tax deducted at source
PAYE (33,130)
Normal personal allowance 11,500 Income tax Payable ___370
Less 1/2 [108,000 – 100,000] (4,000)
Revised Personal Allowance 7,500
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James Income Tax Computation 2017/18 James Income Tax Computation 2017/18
Income Tax calculation:
Non-savings Savings Total Non Savings 33,500 @ 20% = 6,700
£ £ £ 60,000 @ 40% = 24,000
Trading income 102,000 - 102,000 Savings 500@ 0% 0
Bank interest 4,000 - . 3,500 × 40% = 1,400
Total Income 102,000 4,000 106,000 Income Tax Liability 32,100
Less: PA(W1) (8,500) (8,500)
Taxable income 93,500 4,000 97,500 (W1) As adjusted net income exceeds £100,000, the normal
personal allowance is then restricted
Normal personal allowance 11,500
Less 1/2 [106,000 – 100,000] (3,000)
Revised personal allowance 8,500
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David Income Tax Computation 2017/18 Victoria Income Tax Computation 2017/18
£ £
Trading Profit 8,000 Employment Income 30,000
Revised PA (11,500 - 1,150) (10,350) PA (11,500)
Taxable Income Nil Taxable Income 18,500
Tax Calculation
Non Savings 18,500 x 20% = 3,700
PA tax reduction (1,150 x 20%) = (230)
Tax Liability 3,470
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Reliefs Example 12
• Reliefs are tax deductible
• The only reliefs examinable at Paper F6 are Kathy has trading profit of £50,000 in 2017/18 and paid
- qualifying interest £1,000 interest on a loan to purchase plant & machinery used
in the business of her partnership.
- loss reliefs (later chapters)
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Payments to charity under the Gift Aid System Payments to charity under the Gift Aid System
Higher rate tax payers • The taxpayer can elect to treat gift aid payments made by 31
For higher rate taxpayers, 40% tax relief is given as follows: January to have been made in the previous year
• 20% at source (as noted above), and • ie a payment made by 31 January 2017 can be treated as if
paid in tax year 2015/16
• 20% through the income tax computation, obtained by
extending the basic rate band by the gross donation (so that • This would be advantageous if the taxpayer was likely to be a
more income is taxed at 20% and less at 40%) basic rate taxpayer in 2016/17 but was a higher rate taxpayer
in 2017/18 and would also be better for cash flow purposes
Additional rate tax payer by reducing last year’s tax payable instead of this year’s.
For additional rate taxpayers, 45% tax relief is given as follows: • This would also be advisable if in 2017/18 the taxpayer had
• 20% at source (as noted above) and adjusted net income between £100,000 and £123,000 and
• 25% through the income tax computation by extending both was therefore suffering a loss of their PA
the basic rate band and higher rate band by the gross
donation (so that more income is taxed at 20% instead of 40%
and 40% instead of 45%)
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Non-savings Total
£ £
Thomas earned £160,000 trading profit in 2017/18. In the tax
Trading income 160,000 160,000
year he paid £6,400 to charity under the gift aid scheme.
Total Income 160,000 160,000
Less: Personal Allowance (W1) (–) (–) .
Calculate Thomas’s income tax liability for 2017/18.
Taxable income 160,000 160,000
Income Tax calculations:
Non Savings
(W3) 41,500 @ 20% = 8,300
(W4) 116,500 @ 40% = 46,600
2,000 @ 45% = 900
160,000
Income Tax Liability 55,800
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Kerry Income Tax Computation 2017/18 Kerry Income Tax Computation 2017/18…continued
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Illustrations Residence
2. Victoria receives child benefit of £3,147 in respect of her 4 • A taxpayer’s liability to income tax, CGT and IHT is based upon
children and has ANI of £77,000. their residence and / or domicile
• At F6 a UK resident will be liable to income tax on worldwide
As Victoria’s ANI exceeds £60,000 the child benefit income income and a non UK resident will be liable on only UK income
tax charge is £3,147, being the full amount of the child • In the table (given in exams) a taxpayer is Previously Resident if
benefit received they have been resident in any of the previous 3 tax years
• In addition the following persons are also treated as automatically
resident:
- A person whose only home is in the UK
- A person who carries out full time work in the UK
• A person who works full time overseas and who has not been in
the UK for more than 90 days in the tax year is automatically not
resident
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Illustrations
Illustrations
4. Jensen has always been UK resident spending about 10 months of
3. Fernando was not previously resident in UK but bought a the year in the UK, but on 1 May, 2017 he purchased an apartment
holiday home in the UK on 1 May, 2017 and lived in it for 140 overseas where he lived for most of the tax year returning to the
days in the 2017/18 tax year. The remainder of the year he UK for a further 50 days in 2017/18 when he stayed at the family
lived in his home in Spain home with his wife and children
Jensen has spent more than 15 days in UK in 2017/18 so will not be
Fernando was in the UK too long (>45 days) to be automatically not resident. He will also not be automatically
automatically treated as not resident, but not long enough to resident in the UK as he has not spent 183 days in the UK nor does
be treated as automatically resident (<183 days) nor did he he have his only home in the UK.
have his only home in the UK.
As he was in the UK for between 46 and 90 days he will remain
resident for 2017/18 as he has 3 UK ties:
Using the table therefore as he has been in UK for between
121 days and 182 days and has only one tie with the UK - Spouse/children in UK
(made use of UK house), so as he was not previously UK - A house in the UK that he uses
resident he is therefore not UK resident in 2017/18 - In the UK for more than 90 days in previous 2 years
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