1): Basic Income Tax Calculation

Question 1

[Income Tax Step 1] What is the first step in calculating income tax?

Answer 1

Add all sources of taxable income (salary, trading profit, rental income, interest, dividends).

Question 2

[Income Tax Step 2] What must be excluded at Step 2 of the IT calculation?

Answer 2

Non-taxable income (e.g. government benefits).

Question 3

[Income Tax Step 3] What is deducted at Step 3 of the IT calculation?

Answer 3

Allowable tax reliefs on expenditure (e.g. interest on business loans).

Question 4

[Income Tax Step 4] What is deducted at Step 4 of the IT calculation?

Answer 4

Personal allowance (subject to high-income reductions, marriage allowance, blind person’s allowance).

Question 5

[Income Tax Step 5] What does the calculation produce at this step?

Answer 5

Taxable income.

Question 6

[Income Tax Step 6] How is income separated for tax calculation?

Answer 6

Into non-savings, savings, and dividend income.

Question 7

[Income Tax Step 7] What do you apply at this step?

Answer 7

Relevant tax rates to each source of income (basic, higher, additional rates).

Question 8

[Income Tax Step 8] What is applied to savings income?

Answer 8

Personal Savings Allowance.

Question 9

[Income Tax Step 9] How is tax on savings income calculated?

Answer 9

Tax on savings income above the Personal Savings Allowance.

Question 10

[Income Tax Step 10] What is applied to dividend income?

Answer 10

Dividend Allowance.

Question 11

[Income Tax Step 11] How is tax on dividend income calculated?

Answer 11

Tax payable on dividend income over the Dividend Allowance.

Question 12

[Income Tax Step 12] What is the final step in income tax calculation?

Answer 12

Add tax due from all income sources to get Total Tax Payable.

Subtract PAYE already deducted, remainder paid via Self-Assessment.