Chapter 2: Computing Taxable income and the income tax liability

Question 2.1-Answers
In each of cases given below, explain whether individual is a UK resident or non-UK resident:
(a).
Mohan is arriving in the UK. He satisfies one of the automatic overseas tests since he spent less
than 46 days in the UK in 2019-20 and was not resident in the UK for any of the previous three
tax years. Mohan is therefore not UK resident for the tax year 2019-20.
(b).
John is arriving in the UK. He does not satisfy any of the automatic overseas tests since he
spends 46 days or more in the UK and does not work overseas. He satisfies one of the
automatic UK tests since his only home is in the UK. John is therefore UK resident for the tax
year 2019-20.
(c).
Rishi is arriving in the UK. She does not satisfy any of the automatic overseas tests since she
spends 46 days or more in the UK and does not work overseas. She does not satisfy any of the
automatic UK tests as she spent less than 183 days in the UK, has an overseas home and does
not work in the UK. The “sufficient ties” test is therefore relevant. Rishi spends between 121
and 182 days in the UK during 2019-20, and has not previously been UK resident and so she
would need two UK ties to be UK resident for that tax year. Since she has only one tie with the
UK in 2019-20 (available UK accommodation in which Rishi spends at least one night), she is not
UK resident for the tax year 2019-20.
(d).
Richard was previously resident in the UK. He does not satisfy any of the automatic overseas
tests since he spends more than 16 days in the UK and does not work full-time overseas.
Richard does not satisfy any of the automatic UK tests since he spends less than 183 days in the
UK during the tax year 2019-20, has an overseas home and does not work full-time in the UK.
The “sufficient ties” test is therefore relevant. Richard has two UK ties:
i. Available accommodation in the UK in which he spends at least one night in the tax
year
ii. Substantive work in the UK
Richard spends between 91 and 120 days in the UK in 2019-20. These two ties are therefore
sufficient to make him UK resident for the tax year 2019-20.

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(e).
William was not previously resident in the UK. He does not satisfy any of the automatic
overseas tests since he spends more than 46 days in the UK during the tax year 2019-20 and
does not work full-time overseas. William does not satisfy any of the automatic UK tests as he
spent less than 183 days in the UK, has an overseas home and does not work in the UK. The
“sufficient ties” test is therefore relevant. William has two UK ties:
i. Available accommodation in the UK in which he spends at least one night in the tax
year
ii. UK resident close family
William spends between 91 and 120 days in the UK in 2019-20 and so he would need three UK
ties to be UK resident for that tax year. Since William has only two ties with the UK, he is
therefore non-UK resident for the tax year 2019-20.
Question 2.2-Answer
Non-savings Savings Dividend Total

income income income

£ £ £ £
Employment income 60,450
Building society interest 1,600
Dividends ______ _______ 12,000
Net income 60,450 1,600 12,000 74,050
Less: PA (12,500) _____ ______
Taxable income 47,950 1,600 12,000 61,550
Computation of income tax
Non-savings income
£37,500 x 20% 7,500
(£47,950 -37,500) x 40% 4,180
Savings income
£500 x 0% 0
(£1,600 -500) x 40% 440

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Dividends
£2,000 x 0% 0
(£12,000 – 2,000) x 32.5% 3,250
Tax liability 15,370

Question 2.3-Answer
Sandeep
Non-savings Savings Dividend Total
Income income income
£ £ £ £
Employment income 73,090
Dividends 3,211
Bank deposit interest 1,000
Building society interest _______ 990 ______
Net income 73,090 1,990 3,211 78,291
Less: PA (12,500)
Taxable income 60,590 1,990 3,211 65,791
Computation of tax
Non-savings income
£37,500 x 20% £7,500
(£60,590-37,500) x 40% 9,236
Savings income
£500 x 0% 0
(£1,990 – 500) x 40% 596

Dividend income
£2,000 x 0% 0
(£3,211 -2,000) x 32.5% 394
Total tax liability 17,726

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Less PAYE (16,736)
Tax payable 990
Harriet
Non-savings Savings Dividend Total
Income income income
£ £ £ £
Employment income 24,500
Dividends 4,820
Bank deposit interest 1,095
Building society interest ______ 525 ______
Net income 24,500 1,620 4,820 30,940
Less: personal allowance (12,500)
Taxable income 12,000 1,620 4,820 18,440
Computation of tax
Non-savings income
£12,000 x 20% £2,400
Savings income
£1,000 x 0% 0
(£1,620 – 1,000) x 20% 124

Dividend income
£2,000 x 0% 0
(£4,820 – 2,000) x 7.5% 211
Total tax liability 2,735
Less PAYE (2,400)
Tax payable 335

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Question 2.4-Answer
John
Non-savings Savings Dividend Total
Income income income
£ £ £ £
Employment income 163,540
Dividends 14,111
Bank deposit interest 7,500
Building society interest ______ 7,400 _______
Taxable income 163,540 14,900 14,111 192,551
Computation of tax
Non-savings income
£37,500 x 20% £7,500
(£150,000 - 37,500) x 40% 45,000

13,540 x 45% 6,093

Savings income
£14,900 x 45% 6,705
Dividend income
£2,000 x 0% 0
(£14,111 – 2,000) x 38.1% 4,614
Total tax liability
69,912 Less PAYE
(58,593)

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Tax payable 11,319

Helen
Non-savings Savings Dividend Total
Income income income
£ £ £ £
Employment income 100,000
Bank deposit interest 150
Building society interest 550
Dividends ______ _____ 7,820
Net income 100,000 700 7,820 108,520
Less: personal allowance (9,240)
Taxable income 90,760 700 7,820 99,280
Computation of tax
Non-savings income
£39,500 x 20% £7,900
(£90,760 – 39,500) x 40% 20,504
Savings income
£500 x 0% 0
200 x 40% 80
Dividend income
£2,000 x 0% 0

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 (£7,820 – 2,000) x 32.5% 1,891
Total tax liability
30,375
Less PAYE (28,700)
Tax payable 1,675
Working:
1. Personal allowance

Net income 108,520

Less: Gross amount of gift aid donation (£1,600 x 100/80) (2,000)
Adjusted net income 106,520
Less: income limit (100,000)
Excess 6,520
Personal allowance 12,500
Less half excess (6,520 x 1/2) (3,260)
Revised personal allowance 9,240
2. Basic rate and higher rate limit
£37,500 + £2,000 (£1,600 x 100/80) = £39,500
£150,000 +£2,000 = £152,000

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Question 2.5-Answer
Non-savings Savings Dividend Total
Income income income
£ £ £ £
Employment income 75,000
Trading income 33,500
Dividends 6,250
Building society interest _______ 2,200 _____
Total income 108,500 2,200 6,250 116,950
Less: qualifying interest (1,000)
Net income 107,500 2,200 6,250 115,950
Less: revised PA (10,838)
Taxable income 96,662 2,200 6,250 105,112
Computation of tax payable:
Non-savings income £
£50,125 x 20% 10,025
(96,662 – 50,125) x 40% 18,615
Savings income
£500 x 0% 0

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 £1,700 x 40% 680
Dividend income
£2,000 x 0% 0
(£6,250 – 2,000) x 32.5% 1,381

Total tax liability 30,701

Less PAYE tax (28,000)
Tax payable 2,701

Workings:
1. Personal allowance:

£
Gross amount of gift aid donations (3,600 x 100/80) 4,500
Gross amount of pension plan contributions (6,500 x 100/80) 8,125
Adjusted net income (115,950 -12,625) 103,325
Less: income limit (100,000) (100,000)
Excess 3,325
Personal allowance 12,500
Less: half excess (3,325 x ½) (1,662)
Revised personal allowance 10,838
2. Extended basic and higher rate limits
£37,500 + £12,625 = £50,125
£150,000 + £12,625 = £162,625

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Question 2.6-Answer
Sara
Non-savings Savings Dividend Total
Income income income
£ £ £ £
Trading income 14,500
Property income 9,500
Bank interest 1,000
Dividends ______ _____ 2,400
Net income 24,000 1,000 2,400 27,400
Less: personal allowance (12,500)
Taxable income 11,500 1,000 2,400 14,900
Computation of tax:
Non-savings income
£11,500 x 20% £2,300
Savings income
£1,000 x 0% 0
Dividend income

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 £2,000 x 0% 0
£400 x 7.5% 30
Total tax payable 2,330

Bilal
Non-savings income
£
Net income 57,500
Less: PA (12,500)
Taxable income 45,000

Computation of tax:
Non-savings income
£41,500 x 20% £8,300
(£45,000 – 41,500) x 40% 1,400
Total income tax 9,700
Add: child benefit charge 2,800
Total tax liability 12,500
Less PAYE tax (11,000)
Tax payable 1,500

Workings:
1. Computation of child benefit charge:
Gross amount of personal pension (3,200 x 100/80) 4,000
Adjusted net income (£57,500 -4,000) 53,500
Limit (50,000)
Excess 3,500
Child benefit % 3500/ 100= 35%

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 Child benefit charge £2,800 (£8,000 x 35/100)
2. Extended basic rate limit and higher rate limit
£37,500 + 4,000 = £41,500
£150,000 + 4,000 = £154,000
Note: Child income tax charge is borne by the partner with adjusted net income in excess of
£50,000.

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