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ACCA Applied Skills · Taxation (UK)

The Scope of Income Tax for ACCA TX-UK

The scope of income tax decides whether an individual is taxed in the UK, on which income, and at what rate. You build a computation: total income, less reliefs, less personal allowance, then apply bands to non-savings, savings and dividend income in that order. Then you check the extra charges and limits.

What this chapter covers

This chapter is the foundation of the income tax part of TX-UK. It starts with who is taxed, in which tax year, and on what. It then gives you the computation layout that you will reuse in almost every individual tax question.

The chapter also covers the numbers that drive the computation: the personal allowance and its withdrawal for high income, the rate bands for non-savings, savings and dividend income, the nil rate bands, the cap on income tax reliefs and the child benefit income tax charge. These are all in the Tax Rates and Allowances that ACCA provides, so your job is to know how and when to apply them, not to memorise them.

Everything later builds on this. Employment income, trading profits, property income, pensions, capital gains tax and inheritance tax all feed into or sit beside the income tax computation. If the layout is automatic, later chapters become much easier. TX-UK here follows Finance Act 2025.

Income tax is tested in all three sections of the exam: Section A and B objective questions, and Section C constructed-response questions. A computation question can be marked on the layout and the method, so a clean format earns marks even when one figure is wrong. In objective questions, marking is all or nothing, so a slip on the personal allowance, a band or the order of income loses the whole question. Master this chapter early and you gain easy marks and speed.

The scope of income tax: topics in the order to study them

  1. 1Income Tax Scope, Residence and Tax YearYou first need to know who is taxed, on what, and in which tax year before any figures make sense.
  2. 2Income Tax Computation Format and Types of IncomeThe layout is the skeleton of every later question, and it separates non-savings, savings and dividend income.
  3. 3Personal Allowance and Reductions for High IncomeThe allowance comes off total income in the computation, so learn it straight after the layout.
  4. 4Income Tax Rates, Bands and Nil Rate BandsOnce taxable income is found, you apply the bands and nil rate bands, in the right order for each type of income.
  5. 5Cap on Income Tax ReliefsThis limits certain reliefs deducted in the computation, so it is easier once you know the full layout.
  6. 6Child Benefit Income Tax ChargeThis is a separate charge that depends on income, so leave it until the main computation is secure.

How to prepare The scope of income tax

Aim to be able to write a full computation from memory, then apply the rates from the ACCA tables without hesitation.

  1. Read the Tax Rates and Allowances tables for this chapter so you know what is given and what you must work out.
  2. Learn the computation layout and practise sorting income into non-savings, savings and dividend income.
  3. Work simple computations first, with only the personal allowance and basic bands, until the order of income is automatic.
  4. Add the harder points one at a time: personal allowance withdrawal, nil rate bands, the reliefs cap and the child benefit charge.
  5. Do Section A style questions under time, then at least two full Section C computations in the exam layout, showing every step.
  6. Review each wrong answer and note whether the error was in layout, the rate used, or the arithmetic.

Common mistakes in The scope of income tax

  • Taxing income in the wrong order

    Fix: Always stack non-savings first, then savings, then dividends, and apply the bands in that order.

  • Forgetting the personal allowance reduction for high income

    Fix: Check adjusted net income against £100,000 every time before deducting the allowance.

  • Using the wrong nil rate band for savings

    Fix: Work out which band the taxpayer is in first, then take £1,000 or £500, and nothing at additional rate.

  • Treating nil rate band income as outside the bands

    Fix: Remember that income covered by nil rates still uses up the band, which can push other income into higher rates.

  • Applying the child benefit charge as a flat percentage

    Fix: Take income over £60,000, divide by £200, ignore any part-step, and apply 1% per step to the benefit, within the £60,000 to £80,000 range.

  • Losing marks through poor layout in Section C

    Fix: Use the standard columns, label each line, show the tax calculation separately and state any assumptions.

Last-day revision: The scope of income tax

  • 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.

The scope of income tax practice questions

The scope of income tax in other exams

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

The scope of income tax: frequently asked questions

Do I need to memorise the income tax rates for TX-UK?

No. ACCA provides the Tax Rates and Allowances in the exam. You need to know where each figure applies and how to use it, so practise with the tables beside you.

Is the scope of income tax tested in the objective questions or the written section?

Both. Objective questions test single points such as bands or allowance reduction, with all-or-nothing marking. Section C tests the full computation and layout.

What order should I study the income tax scope topics in?

Start with residence and tax year, then the computation layout, the personal allowance, the rates and bands, the cap on reliefs and the child benefit charge. This follows how a computation is built.

How is the personal allowance affected by high income?

The income limit is £100,000. The allowance is reduced once adjusted net income goes above that, and it is zero where adjusted net income is £125,140 or more.