Friday, 17 June 2016

PERSONAL TAX PART 2


  • Basic Rate bracket will now be extended to: £31,785 + (£960/ 0.8) = £32,985
  • Interest from ISA’s are not taxed
  • Interest and dividends received will need to be grossed up
  • Thomas will be entitled to the full personal allowance of £10,600, since his taxable income is less than £100,000



Totals
Non-Investment
Savings
Dividends
Capital Gains

£
£
£
£
£
Employment income
43,000
43,000



Interest (£1900/0.8)
  2,375

2,375


Dividends (£1683/0.9)
  1,870


1,870

Capital gains
20,100



20,100
Total income
67,345
43,000
2,375
1,870
20,100
Personal Allowance
(10,600)
(10,600)



Taxable income
56,745
32,400
2,375
1,870
20,100


This above table implies that the first item to be taxed will be £32,400 and then the next £585 from savings income will be taxed at 20% to make up the extended basic rate bracket (remember the basic rate has been extended from £31,785 to £32,985 due to the gift aid donations). The rest of the taxable income will be taxed at the applicable higher rate based on the type of income.


Tax liability computation:



£

£
Taxable employment income
32,400
£32,400 @ 20%
6,480.00
Interest
    585
£585 @ 20%
   117.00
Sub-total
32,985


Interest (£2,375-£585)
  1,790
£1,790 @ 40%
   716.00
Dividends
  1,870
1,870 @ 32.5%
   607.75
Capital gains tax
20,100
£20,100 @ 28%
5,628.00
Taxable income (same as above)
56,745


Total tax liability


13,548.75
                                   

You will notice the interest is split into two lines in the table above. This is because the savings income is the next type of income to be taxed and we need to use up the extended 20% tax bracket of £32,985, which the taxable employment income doesn’t cover this bracket in full; so the balance is covered in the savings income and taxed at 20% and the remaining savings income is taxed at 40%.

The rest of the taxable income are below £150,000 so they all fall into the higher rate tax bracket and have been taxed using different tax rates based on the type of income.

The table above shows that Thomas is due to pay tax of £13,548.75; remember he would have paid some taxes already, so it’s just the additional tax amount he will now be due to pay.

Yours Sincerely,
The Friendly Team


The Training Place of Excellence Limited

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