Answer question :

(a)Bob has total income of 22,445 in 2020-21. None of his income is derived from savings or dividends. During the year he makes a payment which is deductible from total income of 200 (paid gross). (b) Cathy's circumstances are precisely the same as Bob's except that her payment is required by law to be made net of basic rate tax, so she pays a net amount of 160.

Compute Bob and Cathy's income tax liabilities for 2020-21. Does it seem to make any difference whether a deductible payment is made gross or net?

EXAMPLE 2:

At what rate of income tax is each of the following types of payment relieved in tax year 2020-21?

(a) interest on a qualifying home loan used to buy an annuity

(b) qualifying maintenance payments (c) a gift of pre-eminent property to the nation.

EXAMPLE 3: Explain the steps to calculate tax liability for payment that is made NET.

EXAMPLE 4:

Explain the main types of property income for tax purposes.

EXAMPLE 5:

(a) Explain what is allowable expenditure.

(b) Explain examples of allowable expenses.

Solution Bob Cathy Total income Less: Payment Payment 160 x 100/80 0 0 Net income Less:personal allowance Taxable income 1. Income tax 9,745 x 20% 9,745 x 20% Tax borne Add: Tax deducted from payment Tax liability Explanation