chapter 2 - calculation of income tax

savings income allowance

• basic rate taxpayer (adjusted net income of <50,270 = receives PSA of 1000

• higher rate taxpayer (adjusted net income 50,270< X < 125,140 = receives PSA of 500

• additional rate taxpayer (adjusted net income >125,140, receives no PSA

extending the bands for charity donations and personal pension payments

• if payment is made, it is made after tax liability has been calculated (net of tax)

• so, multiply donation/payment by 100/80 (20% basic rate tax made so finding original amount)

• extend bands by this amount and this becomes new bands limit

• sum tax saving from band extension and tax saved at source (when payment was made - the difference between donation made and original amount)

payroll giving and occupational pension schemes

• taxpayer may donate via employer (under payroll giving, taxpayer requests this)

• taxpayer may contribute to OPS directly via employer

• tax relief on both payments (bc already deducted from salary)

tax planning for spouses

• people should consider transferring assets between each other to earn maximum benefits from savings allowance and dividends allowance, even if they pay tax at the same rate

• people should consider to make charitable payments/ into pensions to reduce tax liability or to preserve higher personal savings allowance