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

Mia has employment income of £60,000 and no other income. She pays £8,000 into a personal pension scheme, which is the net amount after the scheme claims basic rate relief. The personal allowance is £12,570. What is her income tax liability for the year?

The liability is £9,486. The gross pension contribution of £10,000 extends the basic rate band to £47,700. Taxable income of £47,430 therefore falls entirely in the extended basic rate band and is taxed at 20%.

  1. A£9,486Correct
  2. B£11,432
  3. C£9,832
  4. D£7,486

Explanation

The gross contribution is £8,000 × 100/80 = £10,000, so the basic rate band is extended to £47,700. Taxable income is £60,000 − £12,570 = £47,430, all of which is taxed at 20%, giving £9,486. £11,432 ignores the band extension. £9,832 extends the band by only the net £8,000. £7,486 deducts the gross contribution from income.

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