ACCA Applied Skills · Taxation (UK)

The scope of income tax: formula sheet

Full chapter guide

Key formulas

Tax year: 6 April to 5 April; The tax year 2025/26 runs from 6 April 2025 to 5 April 2026. Use the year in which the income falls.
Automatic non-residence (previously resident or not): Days in UK < 16 → automatically not resident; Applies to everyone, whether or not previously resident.
Automatic residence: Days in UK ≥ 183 → automatically resident; Applies to everyone. No ties are needed.
Residence test: previously resident: 16–45 days: 4 ties | 46–90: 3 ties | 91–120: 2 ties | 121–182: 1 tie; Resident if the number of UK ties is at least the number shown.
Residence test: not previously resident: 16–45 days: automatically not resident | 46–90: 4 ties | 91–120: 3 ties | 121–182: 2 ties; Resident if the number of UK ties is at least the number shown. The table in the exam is provided, so learn how to read it.
Scope of charge: UK resident → worldwide income; non-resident → UK income; Check the source of each item of income before including it.
Total income: Total income = non-savings + savings + dividend income; Before reliefs and before the personal allowance.
Net income: Net income = total income − reliefs; Reliefs include trading losses and qualifying interest, subject to the cap on reliefs. The cap is the higher of £50,000 or 25% of income unless otherwise restricted.
Taxable income: Taxable income = net income − personal allowance; Deduct the allowance from non-savings first, then savings, then dividends. It cannot go below nil.
Normal rates (non-savings and savings): Basic £1 – £37,700: 20%. Higher £37,701 – £125,140: 40%. Additional over £125,140: 45%; The bands apply to taxable income.
Dividend rates: Basic 8·75%. Higher 33·75%. Additional 39·35%; Dividends are taxed after non-savings and savings income.
Nil rate bands: Savings nil rate band: £1,000 (basic rate), £500 (higher rate). Dividend nil rate band: £500; Income in a nil rate band is taxed at 0% but still uses up the rate band. Additional rate taxpayers get no savings nil rate band.
Starting rate for savings: 0% on savings income within the first £5,000 of taxable income; Only available if non-savings taxable income is below £5,000.
Personal allowance: Personal allowance = £12,570; Standard amount for the 2025/26 tax year as provided in the ACCA tax tables for this exam.
Adjusted net income: Adjusted net income = Net income − gross Gift Aid donations − gross personal pension contributions; Net income is total income less reliefs deducted in arriving at net income. Use gross amounts, not the cash paid.
Reduction in allowance: Reduction = (Adjusted net income − £100,000) ÷ 2; Round down to a whole pound is not required in the tables; apply only if adjusted net income exceeds £100,000.
Reduced allowance: Allowance = £12,570 − reduction (not below nil); Allowance is nil where adjusted net income is £125,140 or more.
Gross from net: Gross = Net paid × 100 ÷ 80; Used for Gift Aid and relief-at-source pension payments, which are paid net of basic rate tax.
Income tax bands: Basic £1 – £37,700; Higher £37,701 – £125,140; Additional over £125,140; Applied to taxable income, which is after the personal allowance.
Normal rates (non-savings and savings): 20% basic; 40% higher; 45% additional; Non-savings income is taxed first, then savings.
Dividend rates: 8.75% basic; 33.75% higher; 39.35% additional; Dividends are taxed last, after non-savings and savings.
Savings nil rate band: Basic rate taxpayer £1,000; higher rate taxpayer £500; Based on the band your taxable income reaches. The tables give no amount for additional rate taxpayers.
Starting rate for savings: 0% on savings income within the first £5,000 of taxable income; Only available if non-savings taxable income is below £5,000. It is reduced by non-savings taxable income.
Dividend nil rate band: £500 for all taxpayers; Taxed at 0%, but the £500 still uses up the band it falls in.
Order of taxation: Non-savings → Savings → Dividends; Fill the bands in this order.
Cap on income tax reliefs: Cap = higher of £50,000 or 25% × income; Applies unless otherwise restricted. Compute both figures and take the larger.
25% test: 25% × income = income × 0.25; This exceeds £50,000 only when income is above £200,000.
Relief allowed: Relief deducted = lower of (capped reliefs claimed) and (cap); Any excess over the cap is not deducted against income in that year.
Charge band: Charge applies where adjusted net income is between £60,000 and £80,000 (full clawback at £80,000 and above); The charge is based on adjusted net income, not total income.
Charge percentage: Percentage = (Adjusted net income − £60,000) ÷ £200, rounded down to a whole number; The charge is 1% of child benefit for every £200 of income over £60,000. Take only complete £200 steps; round down any part step.
Charge: Charge = child benefit received × percentage; Cap the percentage at 100%. Use the child benefit for the whole tax year, or the part year in which it was received.
Adjusted net income: Adjusted net income = net income − gross Gift Aid donations − gross personal pension contributions paid; Net income is total income less reliefs deducted in arriving at net income. Use the grossed-up amounts for the deductions.

Quick revision

Layout: total income, less reliefs, less personal allowance, taxable income, then tax.
Income is taxed in the order non-savings, then savings, then dividends.
Basic rate band is £37,700, taxed at 20% on normal income and 8.75% on dividends.
Higher rate runs from £37,701 to £125,140 at 40% (dividends 33.75%).
Additional rate applies above £125,140 at 45% (dividends 39.35%).
Personal allowance is £12,570 and reduces once adjusted net income exceeds £100,000.
Personal allowance is nil when adjusted net income is £125,140 or more.
Savings nil rate band is £1,000 for basic rate and £500 for higher rate taxpayers; additional rate gets none.
Dividend nil rate band is £500 and it still uses up band space.
The 0% starting rate for savings applies only where savings fall within the first £5,000 of taxable income.
Reliefs are capped at the higher of £50,000 or 25% of income, unless otherwise restricted.
Child benefit charge: 1% of the benefit for every £200 of income over £60,000, for income between £60,000 and £80,000.

Common mistakes

Using 1 January to 31 December or 1 April to 31 March as the tax year. Fix: Write 6 April to 5 April next to the question before you start.
Using the wrong column of the residence table. Fix: Decide previous residence first and underline the column you will read.
Taxing dividends before savings or non-savings income. Fix: Always tax in the order non-savings, savings, dividend. Dividends sit on top of the other income.
Confusing total income with taxable income. Fix: Total income is before reliefs and the personal allowance. Taxable income is after both. Label each line clearly.
Using taxable income or total income instead of adjusted net income for the £100,000 test. Fix: Always build adjusted net income from net income, then deduct gross Gift Aid and gross pension payments.
Deducting the net cash paid for Gift Aid or pensions when finding adjusted net income. Fix: Gross up by 100 ÷ 80 first, then deduct the gross figure.
Applying the personal allowance against dividends first. Fix: Deduct the personal allowance against non-savings income first, then savings, then dividends.
Using normal rates (20%/40%) on dividends. Fix: Use 8.75%, 33.75% and 39.35% for dividends. Check the rate table every time.
Using only 25% of income as the cap. Fix: Always compute both figures and take the higher.
Applying the cap to Gift Aid or pension contributions. Fix: Remember these have their own mechanics: Gift Aid extends bands and pensions use the annual allowance.

Exam tips

Learn how to read the residence table rather than memorising every figure. It is provided in the exam.
Always write down the tax year dates in scenario questions.
In objective tests, test the automatic cases first. They often decide the answer.
In written answers, state the conclusion and the reason in one sentence each.
Keep scope separate from rates. Residence decides what is taxed, the bands decide how much.
Draw the three-column layout at the start of every personal tax question, even a short one. Marks are given for correct classification of each income type.
Show the nil rate band amounts as separate lines at 0%. If your final figure is wrong, you can still earn method marks.
In objective test questions, check which figure is asked for. Total income, net income and taxable income are all different answers.