Income
tax is tax charged on income earned by individuals and it’s used by the
government to run and maintain the state.
tax is tax charged on income earned by individuals and it’s used by the
government to run and maintain the state.
The
government tax year starts on 6th April to 5th April the
following year, so we have just come to the end of 2015/16 tax year and started
2016/17 tax year.
government tax year starts on 6th April to 5th April the
following year, so we have just come to the end of 2015/16 tax year and started
2016/17 tax year.
|
Tax year
|
Tax period
|
|
2015/16
|
6
April 2015 to 5 April 2016 |
|
2016/17
|
6
April 2016 to 5 April 2017 |
Sincewe have recently come to the end of 2015/16, we want to use this article to
illustrate the income tax calculation for an individual in 2015/16 and we will
aim at writing another article in the next edition of this magazine showing the
difference in tax calculation for 2016/17, so please look out for the next
edition.
From
the total income earned by an individual, personal allowance is deducted to
arrive at the taxable income. The
personal allowance for 2015/16 is £10,600,
which could vary depending on the individual’s circumstances and income level.
the total income earned by an individual, personal allowance is deducted to
arrive at the taxable income. The
personal allowance for 2015/16 is £10,600,
which could vary depending on the individual’s circumstances and income level.
The
taxable income is subjected to different tax rates which range from 0% up to 45%
on different parts of the income. The tax rates and income brackets are shown below
for different types of income an individual could earn.
taxable income is subjected to different tax rates which range from 0% up to 45%
on different parts of the income. The tax rates and income brackets are shown below
for different types of income an individual could earn.
2015/16 Tax Year
|
|
Income
brackets |
Non-investment
income |
Savings
income |
Dividends
income |
Capital
Gains |
|
Starting
rate |
£0
– £5,000 |
–
|
0%
|
–
|
–
|
|
Basic
rate |
£0
– £31,785 |
20%
|
20%
|
10%
|
18%
|
|
Higher
rate |
£31,786
– £150,000 |
40%
|
40%
|
32.5%
|
28%
|
|
Additional
rate |
Over
£150,000 |
45%
|
45%
|
37.5%
|
28%
|
The
above means that for non-investment income such as employment income, you pay
20% tax on any taxable income (amount after deducting personal allowance) up to
£31,785 and if the persons taxable income is more than that, then the
difference up to £150,000 will then be subject to 40% and then any amount over
£150,000 will be subject to 45%.
We
will now use an illustration to demonstrate the computation of income tax for
an individual.
will now use an illustration to demonstrate the computation of income tax for
an individual.
Illustration:
Thomas Bamqual, is 42 years old and he
has employment income of £43,000; interest received from a building society
savings account of £1,900; dividends received of £1,683; taxable gains from the
sale of a garage property of £20,100 (after deducting the annual exemption);
interest received from an ISA account of £800 and he made gift-aid
contributions of £960 through the year. What will be the tax liability?
has employment income of £43,000; interest received from a building society
savings account of £1,900; dividends received of £1,683; taxable gains from the
sale of a garage property of £20,100 (after deducting the annual exemption);
interest received from an ISA account of £800 and he made gift-aid
contributions of £960 through the year. What will be the tax liability?
Solution:
**You
will need to bear in mind that:
will need to bear in mind that:
Employment income– The employment income is
subjected to tax first, then
subjected to tax first, then
Savings income– The savings
income is subjected to tax next, then
Dividends income– The
dividends are subjected to tax next, then
dividends are subjected to tax next, then
Income from sale of assets– The taxable income from
capital assets will be taxed
capital assets will be taxed
Yours Sincerely,
The Friendly Team
The Training Place of Excellence Limited
ed