INCOME TAX
What is Income? Income = element of reoccurrence e.g. Profits from running a
business e.g. sales, Salaries, Rent, Interest received on loans and from
bank/building society accounts and Dividends and other income received from
investment in companies
Gross Income for that year (6 April to 5 April)
TEMPLATE FOR TRADING INCOME CALCULATION
Chargeable receipts (sales)
LESS
Deductible expenses (income nature; wholly and exclusively for the purposes
of trade; not statute-barred) = everyday expenses of a recurring nature
Add together total outgoings = Rent, Stock, Electricity, Insurance, Salaries, Business
rates
Then takeaway chargeable receipts (sales) by the total outgoings = Deductible
expenses.
LESS
Capital Allowances
Existing pool 18% - “EXISTING” brought pool of plant and machinery x 0.18
=
New Expenditure in tax year AIA (annual investment allowance) of up to
£1,000,000 = “NEW” pool of plant and machinery e.g. new cash registers (if
under 1m can be deducted)
NOTE: if business had spent 1.5 million – can take off the million AND 18% of the
500,000 to reduce income further.
Existing pool + New expenditure in tax year = Capital Allowance.
(Chargeable Receipts – Deductible Expenses) – Capital Allowance = TRADING
PROFIT
, TEMPLATE FOR INCOME TAX CALCULATIONS
STEP 1 - Calculate total income
Gross income from all sources £
e.g. *Trading income (see Prep Task 1 on how to work out)
Property income (rent money coming in)
Employment income (gross) (salary or wages –
Gross/net)
Savings and investment income (e.g. from Interest from
bank
account/building societies)
Dividends (quoted shares)
TOTAL INCOME
STEP 2 - Deduct any allowable reliefs to give net income
TOTAL INCOME
Less
ALLOWABLE RELIEFS (e.g. interest on qualifying loans,
certain trading loss reliefs) - subject to cap of £50,000 (or 25% of
income, if greater) (if previous year, if the net income was a negative
figure then he would be able to deduct this in this step / the person
intends to invest in a business (not quoted on stock exchange) /
Interest already paid on a loan which was took out to purchase
partnership interest e.g. he paid £6,000 in interest on a loan. The loan
was taken out a few years ago to fund the purchase of his partnership
interest). INTEREST ON MORTGAGE IS NOT DEDUCTABLE
NET INCOME
STEP 3 - Deduct any personal allowances to give taxable income
NET INCOME
Less
PERSONAL ALLOWANCE (not available if net income is
£125,000 or over and restricted between £100,000 and £125,000)
TAXABLE INCOME
STEP 4 - Calculate the tax
a) First separate out the savings and dividend income
Taxable income (see step 3 answer)
LESS
Savings (interest on bank account) and dividend income
= non-savings, non-dividend income (‘NSNDI’))
b) Next, calculate tax at the applicable rate(s):
i) Begin with NSNDI
What is Income? Income = element of reoccurrence e.g. Profits from running a
business e.g. sales, Salaries, Rent, Interest received on loans and from
bank/building society accounts and Dividends and other income received from
investment in companies
Gross Income for that year (6 April to 5 April)
TEMPLATE FOR TRADING INCOME CALCULATION
Chargeable receipts (sales)
LESS
Deductible expenses (income nature; wholly and exclusively for the purposes
of trade; not statute-barred) = everyday expenses of a recurring nature
Add together total outgoings = Rent, Stock, Electricity, Insurance, Salaries, Business
rates
Then takeaway chargeable receipts (sales) by the total outgoings = Deductible
expenses.
LESS
Capital Allowances
Existing pool 18% - “EXISTING” brought pool of plant and machinery x 0.18
=
New Expenditure in tax year AIA (annual investment allowance) of up to
£1,000,000 = “NEW” pool of plant and machinery e.g. new cash registers (if
under 1m can be deducted)
NOTE: if business had spent 1.5 million – can take off the million AND 18% of the
500,000 to reduce income further.
Existing pool + New expenditure in tax year = Capital Allowance.
(Chargeable Receipts – Deductible Expenses) – Capital Allowance = TRADING
PROFIT
, TEMPLATE FOR INCOME TAX CALCULATIONS
STEP 1 - Calculate total income
Gross income from all sources £
e.g. *Trading income (see Prep Task 1 on how to work out)
Property income (rent money coming in)
Employment income (gross) (salary or wages –
Gross/net)
Savings and investment income (e.g. from Interest from
bank
account/building societies)
Dividends (quoted shares)
TOTAL INCOME
STEP 2 - Deduct any allowable reliefs to give net income
TOTAL INCOME
Less
ALLOWABLE RELIEFS (e.g. interest on qualifying loans,
certain trading loss reliefs) - subject to cap of £50,000 (or 25% of
income, if greater) (if previous year, if the net income was a negative
figure then he would be able to deduct this in this step / the person
intends to invest in a business (not quoted on stock exchange) /
Interest already paid on a loan which was took out to purchase
partnership interest e.g. he paid £6,000 in interest on a loan. The loan
was taken out a few years ago to fund the purchase of his partnership
interest). INTEREST ON MORTGAGE IS NOT DEDUCTABLE
NET INCOME
STEP 3 - Deduct any personal allowances to give taxable income
NET INCOME
Less
PERSONAL ALLOWANCE (not available if net income is
£125,000 or over and restricted between £100,000 and £125,000)
TAXABLE INCOME
STEP 4 - Calculate the tax
a) First separate out the savings and dividend income
Taxable income (see step 3 answer)
LESS
Savings (interest on bank account) and dividend income
= non-savings, non-dividend income (‘NSNDI’))
b) Next, calculate tax at the applicable rate(s):
i) Begin with NSNDI
