ACCA Applied Skills · Taxation (UK) · The scope of income tax
Carlos has a salary of £45,000, bank interest of £2,000 and dividends of £3,000 in the tax year. His personal allowance is £12,570. What is his total income tax liability?
His total liability is £6,904.75. He is a basic rate taxpayer, so tax is £6,486 on non-savings income, £200 on savings after the £1,000 nil rate band, and £218.75 on dividends after the £500 dividend nil rate band.
- A£6,904.75Correct
- B£6,948.50
- C£7,004.75
- D£7,104.75
Explanation
Taxable non-savings income is £32,430, and total taxable income is £37,430, within the £37,700 basic rate band. Tax: £32,430 × 20% = £6,486; savings £2,000 less the £1,000 nil rate band × 20% = £200; dividends £3,000 less the £500 nil rate band = £2,500 × 8.75% = £218.75. Total is £6,904.75. £6,948.50 ignores the dividend nil rate band.
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