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

Omar has employment income of £130,000 and no other income. He makes a Gift Aid donation of £4,000 net. Assume the personal allowance is £12,570 before any reduction for income over £100,000. What is his income tax liability?

The liability is £43,432. The £5,000 gross donation reduces adjusted net income to £125,000, leaving a personal allowance of £70. The basic rate band extends to £42,700, so tax is £8,540 at 20% plus £34,892 at 40%.

  1. A£43,432Correct
  2. B£43,460
  3. C£44,671.50
  4. D£38,432

Explanation

The gross donation is £5,000. Adjusted net income is £130,000 − £5,000 = £125,000, so the personal allowance is reduced by £12,500 to £70. Taxable income is £129,930. The basic rate band is extended to £42,700, and the additional rate threshold to £130,140, so all income is taxed at 20% or 40%. Tax is £42,700 × 20% = £8,540 plus £87,230 × 40% = £34,892, a total of £43,432. £43,460 ignores Gift Aid in the allowance restriction.

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