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

In 2025/26 Tomas has employment income of £14,000 and bank interest received of £4,000. His personal allowance is £12,570. A 0% starting rate applies to savings income falling within the first £5,000 of taxable income, and the savings nil rate band for a basic rate taxpayer is £1,000. What is his income tax liability?

The liability is £286. Only the £1,430 of non-savings income left after the personal allowance is taxed at 20%. The £4,000 of savings income is then covered by the starting rate band of £3,570 and the £1,000 savings nil rate band, so it bears no tax.

  1. A£286Correct
  2. B£372
  3. C£886
  4. D£1,086

Explanation

Taxable non-savings income is £14,000 – £12,570 = £1,430, taxed at 20% = £286. The starting rate band available for savings is £5,000 – £1,430 = £3,570, so £3,570 of the £4,000 interest is taxed at 0%. The remaining £430 is covered by the £1,000 savings nil rate band, so there is no further tax. Ignoring the nil rate band would tax £430 at 20% and give £372, which is wrong.

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