Taxation (UK) · The scope of income tax

Income Tax Computation Format and Types of Income

Updated 11 October 2026 · Fact-checked

An income tax computation lists income in three columns: non-savings, savings and dividend. You add them to get total income, deduct reliefs to get net income, then deduct the personal allowance to reach taxable income. You then tax each type in that order, using the bands and nil rate bands.

Understand Income Tax Computation Format and Types of Income

Income tax is charged on a person's income for a tax year. The computation is a standard layout. You use it for almost every personal tax question, so learn it until it is automatic.

Income falls into three types. Non-savings income includes employment income, trading profits and property income. Savings income is mainly interest. Dividend income is dividends from companies. The types matter because each has its own rates and its own nil rate band.

The layout has three columns, one per type, in this order: non-savings, savings, dividend. You add the columns to get total income. You deduct reliefs, such as trading losses or qualifying interest, to get net income. You then deduct the personal allowance to get taxable income. So total income is before reliefs and allowance. Taxable income is after both.

The personal allowance is set against non-savings income first, then savings, then dividends. This uses the allowance against the most heavily taxed income first. Tax is then worked out in the same order. Non-savings income uses the basic rate band first, then savings, then dividends.

Savings and dividend income also have nil rate bands. The savings nil rate band is £1,000 for a basic rate taxpayer and £500 for a higher rate taxpayer. The dividend nil rate band is £500. A 0% starting rate also applies to savings income that falls within the first £5,000 of taxable income. Income taxed at 0% still uses up part of the rate band.

Key rules to remember

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.

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

Use the same layout every time. Work in columns so that each type of income stays separate.

1Set up three columns: non-savings, savings and dividend. Put each income source in the right column.
2Check each figure is the amount taxable for the tax year. Savings income is taken as the gross amount received in questions like these. Do not add anything that is exempt.
3Add the columns to get total income. Deduct any reliefs to get net income.
4Deduct the personal allowance from non-savings first, then savings, then dividends. This gives taxable income in each column.
5Decide the taxpayer's band position from taxable income. Check whether any starting rate, savings nil rate band or dividend nil rate band applies.
6Tax non-savings income first, then savings, then dividends. Use the basic rate band in that order and track how much is left.
7Add the tax on all three types. Check that the bands you used add up to taxable income.

Quickest way: Three-column running band method

When to use it: Use this when the question asks for income tax payable and gives mixed income. It saves time on the longer Section C questions.

Write the three columns and total them in one pass.
Subtract the personal allowance from the non-savings column first. If non-savings is used up, take the rest from savings, then dividends.
Write the £37,700 basic rate band beside the working. Take off each column's taxable income as you tax it.
Put nil rate band amounts on their own line at 0% so the marker sees them.
Add the tax lines and check the total band used equals taxable income.

Common mistakes in Income Tax Computation Format and Types of Income

Taxing dividends before savings or non-savings income.
Students tax the largest or first-listed income first.
Fix: Always tax in the order non-savings, savings, dividend. Dividends sit on top of the other income.
Confusing total income with taxable income.
Both terms sound like the final figure.
Fix: Total income is before reliefs and the personal allowance. Taxable income is after both. Label each line clearly.
Deducting the personal allowance from dividends first.
Students want to use it on the income that looks easiest.
Fix: Set it against non-savings first, then savings, then dividends.
Using the wrong savings nil rate band.
Students do not check whether the taxpayer is basic or higher rate.
Fix: Look at taxable income. The £1,000 band applies to a basic rate taxpayer and £500 to a higher rate taxpayer. An additional rate taxpayer gets none.
Forgetting that nil rate band income still uses up the rate band.
Students think 0% income does not count.
Fix: Include income taxed at 0% in the band you are tracking. It can push later income into the higher rate band.
Putting income in the wrong column.
Students do not know what counts as non-savings income.
Fix: Interest is savings and company dividends are dividends. Employment, trading and property income are non-savings.

Worked examples

Example 1

Amy is an employee. In 2025/26 she has employment income of £30,000, bank interest of £2,000 and dividends of £3,000. Assume the personal allowance is £12,570. Calculate her income tax liability.

Show the solution

Total income: non-savings £30,000 + savings £2,000 + dividends £3,000 = £35,000. There are no reliefs, so net income is £35,000.
Deduct the personal allowance from non-savings: £30,000 − £12,570 = £17,430. Savings £2,000 and dividends £3,000 are unchanged. Taxable income is £22,430.
Amy is a basic rate taxpayer, as taxable income is below £37,700. Her savings nil rate band is £1,000. Non-savings income is above £5,000, so there is no starting rate.
Non-savings: £17,430 × 20% = £3,486.
Savings: £1,000 at 0% (nil rate band) and £1,000 × 20% = £200.
Dividends: £500 at 0% (nil rate band) and £2,500 × 8·75% = £218.75.
Total tax: £3,486 + £200 + £218.75 = £3,904.75.

Answer: Income tax liability is £3,904.75.

Example 2

Ben has employment income of £48,000, bank interest of £1,800 and dividends of £4,000. Assume the personal allowance is £12,570. Calculate his income tax liability.

Show the solution

Total income: £48,000 + £1,800 + £4,000 = £53,800. Net income is the same.
Deduct the personal allowance from non-savings: £48,000 − £12,570 = £35,430. Taxable income is £35,430 + £1,800 + £4,000 = £41,230.
Taxable income exceeds £37,700, so Ben is a higher rate taxpayer. His savings nil rate band is £500.
Non-savings: £35,430 × 20% = £7,086. This leaves £37,700 − £35,430 = £2,270 of the basic rate band.
Savings: £1,800 falls in the basic rate band. £500 at 0% and £1,300 × 20% = £260. The remaining basic rate band is £2,270 − £1,800 = £470.
Dividends: the first £500 is at 0% under the dividend nil rate band. This covers £470 in the basic rate band and £30 in the higher rate band. The remaining £3,500 × 33·75% = £1,181.25.
Total tax: £7,086 + £260 + £1,181.25 = £8,527.25.

Answer: Income tax liability is £8,527.25.

Exam tips

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.
Work out whether the taxpayer is basic or higher rate before choosing the savings nil rate band.
Use the rates and allowances provided in the exam. Do not rely on memory for figures you can read from the tax tables.

Practice questions from The scope of income tax

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 taxable income?

Total income is all your taxable income added together before any deductions. Taxable income is what remains after you deduct reliefs and the personal allowance. Tax is calculated on taxable income.

In what order is income taxed in the UK?

Non-savings income is taxed first, then savings income, then dividend income. The personal allowance is also used against income in that order. This order decides which rates apply to each type.

Do income taxed at 0% use up the basic rate band?

Yes. Income covered by the starting rate, the savings nil rate band or the dividend nil rate band still counts towards the rate band. It can therefore push other income into the higher rate band.

What goes in the non-savings column?

Employment income, trading profits and property income all go in the non-savings column. Interest goes in the savings column and company dividends in the dividend column.