Question

a. Basma and Badriya each have total income of £47,845 non which is savings or dividend income. Badriya makes a payment of £2,000 to a charity under the gift aid scheme. Calculate the Income Tax Payable by Basma and Badriya for the year 2018/19. b. Saif has the following income and outgoings for the tax year 2018/19. Trading Income £12,465 Employment Income £13,000 Premium Bond Winnings £2,000 She made the following payments during the tax year 2018/19. • Interest payments during the year totaling £2,000 on his mortgage for his principal private residence. • Interest payments of £2,000 on a loan to invest on a partnership in which he is a partner. Calculate the Income Tax Payable by Saif for the year 2018/19.

Answer 1

a)

The New Income Tax Rates / Brackets for 2018/19 were :-

Tax Rate (Band)	Taxable Income	Tax Rate
Personal Allowance	upto £11,850	0%
Basic Rate	£11,851 to £46,350	20%
Higher Rate	£46,351 to £150,000	40%
Additional Rate	over £150,000	45%

1) Tax Payable by Basma for 2018/19 will be :-

Total Taxable Income of Basma for 2018/19 = £47,845

Tax Payable on first £11,850 @ 0% = £0

Tax Payable on Next £34500 (£46,350-£11,850) @ 20% = £6900

Tax Payable on Next £1,495 (£47,845-£46,350) @ 40% = £598

Thus, Total Tax Payable by Basma for the year 2018/19 is £7,498.

2) Tax Payable by Badriya f/r 2018/19 will be :-

Total Taxable Income of Badriya for 2018/19 = £49,845 (£47,845 + £2,000 paid for charity under Gift Aid Scheme)

Tax Payable on first £11,850 @ 0% = £0

Tax Payable on Next £34500 (£46,350-£11,850) @ 20% = £6900

Tax Payable on Next £3,495 (£49,845-£46,350) @ 40% = £1398

Thus, Total Tax Payable by Basma for the year 2018/19 is £8,298.

Since, Badriya is high rate tax payer, thus, he is liable to claim, from HMRC, the difference between the basic rate of tax claimed by the charity on his donation and the higher rate of tax he has actually paid.

The charity claims back basic rate tax of 20% from HMRC. That’s 25p for every £1 donated so the charity claims £500, making Badriya’s gross donation £2500.

Badriya can claim the difference between her 40% rate of tax and the basic rate of tax of 20% claimed by the charity on his gross donation.

That’s a 20% difference. So, Badriya claims 20% of £2500, that is, a total of £500 – from HMRC.

Thus, total tax payable by badriya for 2018/19 is £8298 - £500 = £7798.

b)