Going along with this presentation is the instruction for self-learning, hihi, but in Vietnamese :D Hope it would be helpful for you in this quite boring subject ^^ (Please read comments from the bottom to the top)

1. Unit 12: Taxation
Chapter 9
The personal tax computation
Nguyen Hoang My Phuong
menfuong@gmail.com
Chau Hung College / BTEC - Edexcel
http://chauhung.edu.vn

2. Chapter 9
The personal tax computation
Scope of Various types Charges on
income tax of income income
Personal tax
Allowances
computation
Families Gift Aid

3. The scope of income tax: chargeable persons, chargeable
income
The key elements of a personal income tax computation –
total income (savings/non-savings/dividend), net income,
taxable income, computations of income tax liability
The key stages in the transition from computation of income
Objectives
tax liability to income tax payable
The different categories of charges
Personal allowances and the circumstances in which they
can be claimed
How to prepare income tax computation

4. Scope of income tax - 1
Chargeable
income
Receipts which might be expected to recur
(weekly wages or profits from running a business)
tax year / fiscal year / year of assessment:
from 6 April to the following 5 April
the tax year 2009/10
from 6 April 2009 to 5 April 2010

5. Key elements of a personal income tax computation
Income tax is
deductible interest charged on
taxable income
Non-savings income personal allowance
trade losses
Savings income Total income Net income Taxable income
less less
Dividend income
The amount charged on the The balance of the liability
individual’s income still to be settled in cash
Tax on non-savings income
less less
Tax on savings income total Tax liability Tax payable
Tax on dividend income tax reducer tax suffered
Investment under EIS PAYE tax on salary
Tax on building society interest
EIS (Enterprise Investment
Scheme) is designed to help smaller
higher-risk trading companies to
Tax credit on dividend income
raise finance by offering a range of
tax reliefs to investors who purchase
new shares in those companies

6. Scope of income tax – 3
Tax rates
40% 40% 40% 40% 32.5%
(higher (higher (higher (higher (higher
rate) rate) rate) rate) rate)
£ 37,400
20%
20% (basic
20% rate)
(basic (basic
20%
rate) rate)
(basic
rate) 10%
£ 2,440 20%
10% 10% (basic
(savings
rate)
income 20%
starting (basic
£0 rate) rate)
Non-savings Savings Dividend
income income income
(gross) (gross)

7. Various types of income – 1
Classification of income
Income from employment, pensions & some social security
benefits
Profits of trades, professions & vocations
Main types
Income from property business
of income
Savings & investment income, including interest & dividends
Miscellaneous income

8. Various types of income – 2
Savings income - 1
Savings income
Banks
Financial institution owned by its
members as a mutual organisation.
Building societies
Offering banking & related financial
services, esp. mortgage lending
Interest
Gilts Interest paid on government securities
Medium- to long-term debt instruments
Debentures used by large companies to borrow
money
Accrued income
scheme

9. Various types of income – 2
Savings income - 2
Interest on National Savings & Investments accounts (NS&I)
(e.g. Investment account, Easy Access Savings account)
Savings income
Interest paid by listed UK companies on debentures & loan stock
received gross
Gilt interest
Savings income Bank & building society interest (not NS&I account interest)
received net of
20% tax (“income Interest paid by unlisted UK companies on debentures & loan
taxed at source”) stock
NS&I: • Deducted income taxed at source can be repaid
• a government department • Grossed up by multiplying by 100/80
Banks & building
• If a recipient is not liable to tax
offering savings & investment societies: private • can cover the tax suffered
to the general public. organsations • can certify in advance that he is a non-taxpayer
• one of the largest savings and received the interest gross
organisations in the UK.

10. Various types of income – 3
Dividend income
Stock dividend Offering shares instead of a cash dividend
Cash alternative, if the amount of the stock dividend
equals the market value of the shares 15%
Amount of stock
dividend
Market value of shares, if
• the amount of the stock dividend differs from the
cash alternative by more than 15%
• no cash alternative
The tax credit on dividend income can be deducted in computing tax payable but cannot be repaid
Grossed up by multiplying by 100/90 (tax credit of 10%)

11. Scholarships (exempt as income of the scholar)
Betting & gaming winnings, including premium bond prizes
Interest or terminal bonus on National Savings Certificates
Many social security benefits (but the jobseeker’s allowance, the
pension and certain incapacity benefits are taxable)
Gifts
Exempt Damages and payments for personal injury (applying for both lump sum
income and periodical payments)
Payments under insurance policies, so long as the person benefiting
paid premiums and did not get tax relief for them
Receipts on a retirement due to special events, or otherwise the
ordinary ill health grounds (only applying to pensions paid under non-
approved pension schemes)
Interest on amounts repaid to borrowers under the income contingent
student loans scheme
Income on investment made though individual savings accounts (ISAs)

12. Activity 1 – in class
1. Joe is aged 55. In 2009/10, he earns a
salary of £7,500 from a part-time job
and receives bank interest of £4,000.
Calculate Joe’s tax liability for 2009/10.
2. An individual has taxable income (all
non-savings income) of £50,000 for
2009/10. What is the income liability?

13. Activity 2 – in class
An individual has the following income in 2009/10
Building society interest received £6,400
Dividends received £7,875
Premium bond prize £5,000
His personal allowance is £6,475. What is his
taxable income?

14. Charges on income
Charge on income A payment by the taxpayer which income tax law allows as a deduction
Paid net (20%) Patent royalties
Categories of
charges on income Eligible interest
Paid gross
Copyright royalties

15. Example
Three taxpayers have the following Trade profits:
 A: £8,000
 B: £3,000
 C: £46,195
Taxpayer A and B pay a non-trade royalty of £200
(net). Taxpayer C pays a non-trade royalty of
£1,280 (net).
Calculate the tax payable for each.

16. Allowances deducted from net income
Non-savings income Savings income Dividend income
Allowances is deducted
1 2 3
from
Personal
Individuals Note
allowances
All persons (including children) £6,475
People aged 65-74 years old Net income > £22,900 (income
£9,490
(at any time in the tax year) limit for age-related allowance)
then
>=75 years old PAA = PA - (net income –
£9,640 22,900)/2
(at any time in the tax year)
(until PAA comes down to £6,475)
Blind person’s allowance £1,890
(BPA)
Also given for the year before registration, if the taxpayer
had obtained the proof of blindness needed for registration
before the end of that earlier year.

17. Activity 3 – at home
Susan has an annual salary of £37,000. She has a
loan of £7,000 at 10% interest to buy shares in her
employee-controlled company, and another loan of
£5,000 at 12$ interest to buy double glazing for her
house. She receives building society interest of
£2,000 a year.
What is her taxable income for 2009/10?

18. Gift aid
One-off and regular charitable gifts of money qualify for tax relief under the gift
Definition
aid scheme provided the donor the charity a gift aid declaration
In writing
Declaration Electronically via Internet
Orally over the phone
Must not to repayable
Gifts
Must not confer any more than a minimal benefit on the donor
Gifts Treated as though it is paid net of basic rate tax (20%)

19. Activity 4
James earns a salary of £58,000 but has no other
income. In 2009/10 he paid £8,000 (net) under the
gift aid scheme.
Compute James’s income tax liability for 2009/10

20. Families
Spouses
Taxed as separate Income -
people age
Given same-sex couples rights
Civil partners
and responsibilities identical to
civil marriage.
Equal shares of the
income
Jointly own income- Income /
generating property Capital gain
Making a joint declaration On or after the date
specifying the proportion of the declaration

21. Families - 2
Income
Parents Minor children
Capital gain
not <= £100 (gross) / year
not
Other relatives’ Parents’ income
income Parents’ income
England, Wales,
Under 18
Northern Iceland
Minor children
Scotland Under 16

22. Steps in the income tax computation
Non-savings income
1 Preparing a personal tax computation Savings income Total income
Dividend income
2 Dealing with non-savings income
3 Dealing with savings income
4 Dealing with dividend income
5 Adding (2) + (3) + (4) Income tax liability
If exceeding the income tax liability, this
6 Deducting the tax credit on dividends
deductible tax credit cannot be repaid
Deducting the tax deducted at source from If exceeding the income tax liability, this
7
savings income & any PAYE deductible amount can be repaid

23. Exercise
Calculate the personal tax of:
1. Kathe has a salary of £10,000 and receives
dividends of £4,500.
2. Jules has a salary of £20,000, business of
£30,000, net dividends of £6,750 and building
society interest of £3,000 net. He is entitled to
relief on interest paid of £2,000.
3. Jim does not work. He receives net bank
interest of £38,000. He is entitled to relief on
interest paid of £2,000.

24. Quick quiz
1. At what rates is income tax on non-savings
income charged?
2. What types of income are taxed at source?
3. How is UK dividend income tax?
4. What charges on income are paid net?
5. What loan interest is allowable as a charge?
6. What is the amount of personal age allowance
available to a 70 year old?
7. How is income from property jointly owned by
spouses taxed?6

25. Chapter 9
The personal tax computation
Scope of Various types Charges on
income tax of income income
Personal tax
Allowances
computation
Families Gift Aid

26. The scope of income tax: chargeable persons, chargeable
income
The key elements of a personal income tax computation –
total income (savings/non-savings/dividend), net income,
taxable income, computations of income tax liability
The key stages in the transition from computation of income
Objectives
tax liability to income tax payable
The different categories of charges
Personal allowances and the circumstances in which they
can be claimed
How to prepare income tax computation

27. Q&A
menfuong@gmail.com