Week 1 - Student Notepack

Week 1 – Income Tax (Core Principles)

• Learning Objectives:

  • Understand the administrative issues of the module.

  • Identify key features of income taxation.

  • Identify income taxpayers and types of income subject to tax.

  • Classification of income and exempt income.

  • Prepare a basic income tax computation.

  • Understand personal allowance and apply income tax rates (non-savings, savings, dividends).

Module Overview

• Module Team and Structure:

  • UK Tax Framework

  • Computational and Practical focus

  • Exemptions relevant only to the UK context

  • Related qualifications:

    • ACCA – F6/TX Taxation

    • ICAEW – Principles of Taxation (Knowledge level)

    • CIMA

Housekeeping

• Course Format:

  • Study applicable for the tax year ending on April 5, 2025.

• Materials Required:

  • Essential Reading:

    • Hunt, M. (2024). UK Taxation: A Simplified Guide for Students. Finance Act 2024 edition, London: Spiramus Press Ltd.

    • Additional Textbook:

      • Melville, A. (2024/2025). Taxation: Finance Act 2024, 30th Ed, Pearson Education.

• Assessment Structure:

  • Invigilated In-Class Test (30% of module grade):

    • Date: w/c 3/3/2025

    • Duration: 65 minutes (including reading time)

    • 13 questions: 12 MCQs/Multi-response and 1 income tax calculation

  • Invigilated Examination (70% of module grade):

    • Date: May 2025 (Timetable TBD)

    • Duration: 3 hours and 45 minutes

    • Section A: 2 compulsory questions (Income Tax and Corporation Tax) = 70 marks

    • Section B: Complete 1 of 2 questions (Cap Gains or other area) = 30 marks

Taxable Persons

• Anyone liable to UK taxation categorized as income taxpayers: adults, children, trustees, and personal representatives.

Income Classification

• Categories of Taxable Income:

  • Employment Income

  • Property Income

  • Trading Income

  • Savings Income

  • Dividends

• Exempt Income: Income ignored for tax purposes, including:

  • Child Trust Fund income

  • Save As You Earn

  • Disability pensions

  • Child benefits

  • Cashback

  • Personal injury payments

  • Foster payments

Preparing an Income Tax Computation

• Steps:

  1. Identify the relevant tax year (6th April to 5th April annually).

  2. Identify income within that period.

  3. Calculate taxable income after personal allowance.

  4. Determine tax liability based on rates for each income type.

• Personal Allowance (PA):

  • Amount exempt from taxation; based on inflation adjustments.

  • For 2024/25: to be specified (not provided).

  • Priority applied to non-savings income, followed by savings and dividends.

Example Income Tax Computation

• Example with a sample taxpayer, Amrit:

  • Total Income:

    • Part-time salary: £17,850

    • Interest on deposits: £2,360

    • ISA Interest: £250

    • Dividends: £18,650

    • Total Personal Allowance: to be determined.

• Tax Calculation Structure:

  • Different rates for non-savings, savings, and dividends applied consecutively.

• Applicable Rates (2024/25):

  • Basic rate: 20% on income up to £37,700

  • Higher rate: 40% on income from £37,701 to £125,140

  • Additional rate: 45% on income above £125,140

Reliefs and Deductions

• Deduct any tax credits, and the amount paid through employees at source (PAYE), to find the payable tax amount.

Practice Examples

• Worked Examples:

  • Multiple taxpayers (Farah, Fawad) each with specifications about income types and PAYE deductions for tax computation practice and completion.

• Practice Recommendations:

  • Classifications, calculations, and using templates for taxable income calculations for upcoming in-class assessments.

• Additional practice questions provided from textbook.

Next Steps

• Read Chapters 1, 2, and 3 of the textbook before the next class.

• Complete additional practice questions assigned.

• Watch a preparatory YouTube video posted by Friday.

• Bring necessary materials for the next session.