Taxation (UK) · The comprehensive computation of taxable income and income tax liability

Income Tax Computation Format and Types of Income

Updated 11 October 2026 · Fact-checked

The income tax computation lists all taxable income in three columns: non-savings, savings and dividend income. You leave out exempt income, add up total income, deduct reliefs to reach net income, deduct the personal allowance to reach taxable income, then tax each type in the correct order using the bands.

Understand Income Tax Computation Format and Types of Income

Every TX-UK income tax question starts with a layout. You list each source of income, put it in the correct column, and then work down to the tax. A good layout makes the later steps easy and earns method marks even if one figure is wrong.

There are three types of income. Non-savings income is employment income, trading profits and property income. Savings income is mainly bank and building society interest and interest on gilts and corporate bonds. Dividend income is dividends from UK and overseas companies. The types matter because each is taxed at different rates and in a fixed order: non-savings first, then savings, then dividends.

Exempt income is never taxed and never goes in the computation. Common examples are interest and returns on an individual savings account (ISA), interest on National Savings & Investments (NS&I) certificates, and rent-a-room receipts within the limit. The ISA overall investment limit is £20,000. The rent-a-room limit is £7,500. Leave exempt items out, but check whether the question gives an amount above a limit.

The computation has a fixed flow. Total income is the sum of all taxable income after leaving out exempt income. Deduct reliefs, such as trading losses and qualifying interest, to get net income. Deduct the personal allowance to get taxable income. The personal allowance is £12,570 but is reduced where adjusted net income is above £100,000.

The key difference between total income and net income is the reliefs. If there are no reliefs, they are the same figure. Always show both lines so the marker can see you know the structure.

Key rules to remember

Computation flow: Total income − reliefs = Net income; Net income − personal allowance = Taxable income; Show each line. The personal allowance is deducted from non-savings income first, then savings, then dividends.
Order of income: Non-savings → Savings → Dividends; Applies both to deducting the personal allowance and to using up the basic rate band.
Normal income tax rates: Basic £1 – £37,700: 20%; Higher £37,701 – £125,140: 40%; Additional over £125,140: 45%; Apply to non-savings and savings income. These are the rates and bands in the ACCA tax tables.
Dividend rates: Basic 8·75%; Higher 33·75%; Additional 39·35%; The dividend nil rate band is £500. Dividends covered by it are taxed at 0% but still use up a band.
Savings nil rates: Starting rate 0% on savings within the first £5,000 of taxable income; savings nil rate band £1,000 (basic rate taxpayer) or £500 (higher rate taxpayer); The starting rate is only available if non-savings taxable income is below £5,000. Additional rate taxpayers get no savings nil rate band.
Personal allowance: £12,570, reduced where adjusted net income exceeds £100,000; The allowance is reduced to zero when adjusted net income is £125,140 or more.

How to solve Income Tax Computation Format and Types of Income questions

Use the same layout every time. Do it in this order and you will rarely miss an item.

1Draw three columns headed Non-savings, Savings and Dividends, with a Total column.
2List each source of income and put it in the correct column. Use the tax year's figures as given in the question.
3Strike out exempt income, such as ISA returns and NS&I certificate interest. Write a short note saying it is exempt.
4Add up each column and the total to get total income.
5Deduct any reliefs (for example trading losses or qualifying interest) to reach net income.
6Deduct the personal allowance, using it against non-savings first, then savings, then dividends. This gives taxable income.
7Calculate the tax by type: non-savings first, then savings, then dividends, using the bands and nil rates. Then deduct any tax reducers and add up the tax liability.

Quickest way: Three-column tick-through

When to use it: Use it in objective test questions and in Section C when time is short.

Scan the scenario once and mark each item N (non-savings), S (savings) or D (dividends), or X (exempt).
Add up each letter group on the calculator without writing out the full layout.
For a total income question, the answer is N + S + D only. Ignore X items.
For a taxable income question, deduct the personal allowance from N first. Only if N is below £12,570 does the rest go against S and then D.
Check that you have not deducted the personal allowance from total income twice.

Common mistakes in Income Tax Computation Format and Types of Income

Including ISA interest or NS&I certificate interest in total income.
The question lists it alongside taxable interest and it looks like normal savings income.
Fix: Check each item for an exempt label before you add it. Cross it out in your layout and write 'exempt'.
Putting dividends or interest in the non-savings column.
All three are 'investment income' to the student, so the classification step is skipped.
Fix: Learn the three lists: non-savings is employment, trading and property; savings is interest; dividends is dividends.
Deducting the personal allowance from dividend income first.
Students want to save tax at the highest rate, or they just deduct from the biggest number.
Fix: The order is fixed: non-savings, then savings, then dividends.
Confusing total income and net income.
Both look like 'income before the allowance' and the names are similar.
Fix: Net income is total income after reliefs. Total income is before reliefs. Write both lines even where no reliefs exist.
Treating rent-a-room receipts as taxable when they are within the £7,500 limit.
Rental income is normally taxable property income, so the exemption is overlooked.
Fix: Compare gross receipts with £7,500 and treat them as fully exempt if they are within the limit, unless the question suggests another treatment.

Worked examples

Example 1

In 2025/26, Amir has employment income of £30,000, bank interest received of £1,200, dividends received of £2,000, ISA interest of £400 and NS&I savings certificate interest of £300. Calculate his total income and net income.

Show the solution

Non-savings: employment income £30,000.
Savings: bank interest £1,200. ISA interest of £400 and NS&I certificate interest of £300 are exempt.
Dividends: £2,000.
Total income = £30,000 + £1,200 + £2,000 = £33,200.
There are no reliefs, so net income = £33,200.

Answer: Total income is £33,200 and net income is £33,200.

Example 2

In 2025/26, Beth has trading profit of £48,000, UK property income of £6,000, building society interest of £3,000 and dividends of £4,000. She has no reliefs. Calculate the income tax liability using the rates in the ACCA tax tables.

Show the solution

Non-savings: £48,000 + £6,000 = £54,000. Savings £3,000. Dividends £4,000. Total income and net income = £61,000.
Personal allowance £12,570 is deducted from non-savings. Taxable non-savings = £54,000 − £12,570 = £41,430. Taxable income = £41,430 + £3,000 + £4,000 = £48,430.
Non-savings tax: the first £37,700 at 20% = £7,540. The remaining £3,730 (£41,430 − £37,700) at 40% = £1,492.
Beth is a higher rate taxpayer, so her savings nil rate band is £500. Savings £3,000: £500 at 0% = £0; £2,500 at 40% = £1,000.
Dividends £4,000: the first £500 at 0% = £0; the remaining £3,500 at 33·75% = £1,181.25.
Total tax = £7,540 + £1,492 + £1,000 + £1,181.25 = £11,213.25.

Answer: Income tax liability is £11,213.25.

Exam tips

Always set out three columns. Even in a short question this shows the marker the classification step.
Read for exempt items first. ISA income and NS&I certificate interest are favourite traps in objective test questions.
Label every line, such as 'total income' and 'net income'. Marks are given for the right layout, not just the final figure.
Check the savings nil rate band by working out whether the taxpayer is basic or higher rate. Use the figures in the tax tables supplied in the exam.
In objective test questions, work out which line of the computation is asked for and stop there.

Practice questions from The comprehensive computation of taxable income and income tax liability

Income Tax Computation Format and Types of Income in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Income Tax Computation Format and Types of Income: frequently asked questions

What is the difference between total income and net income in TX-UK?

Total income is all taxable income from the three columns, before any reliefs. Net income is total income after deducting reliefs such as trading losses. If there are no reliefs, the two figures are the same.

Which types of income are exempt in the TX-UK exam?

Common exempt items are income and gains within an ISA, interest on NS&I savings certificates, and rent-a-room receipts up to £7,500. Exempt income is left out of the computation completely.

Why does the order non-savings, savings, dividends matter?

Each type has its own rates, and the bands are used up in that fixed order. Non-savings income uses the basic rate band first, so savings and dividends are more likely to fall into the higher rate bands.

Where does the personal allowance go in the computation?

It is deducted after net income has been found. It is set against non-savings income first, then savings income, then dividends. Any allowance you cannot use is lost.