Question 5

Kish is an employee of Sin Ltd and his only source of income in 2019/20 is the

remuneration received from Sin Ltd. Kish pays 5% of his salary into the

company pension scheme and Sin Ltd pays 2% contributions. Kish also

paid 24,000 (net) into his personal pension scheme.

The company accounts show the following remuneration paid to Kish:

	Salary	Bonus
30 June 2019	120,000	5,000
30 June 2020	128,000	8,000

The bonuses are paid on 1 January following Sin Ltds year end.

Calculate Kishs total tax liability for the tax year 2019/20. Calculate the maximum personal pension contribution that Kish can make in the tax year 2020/21 assuming his salary remains the same.

You should assume the tax rates for 2019/20 continue to apply in the future.

(10 marks)

Tax Rates and Allowances 2019/20

Income Tax

Main Personal Allowances

Personal allowance	12,500
Income limit for personal allowance (Note 1) Marriage allowance (Note 2)	100,000 1,250

Note 1: When income exceeds the limit a clawback applies reducing the personal

allowance by 1 for every 2 above the limit.

Note 2: Spouses/civil partners are able to transfer 1,250 of their unused personal

allowance to their partner if both are basic rate taxpayers.

Tax Rates and Taxable Bands

			Normal rate		Dividend rate
Basic rate	0 - 37,500			20%	7.5%
Higher rate	37,501 - 150,000			40%	32.5%
Additional rate	Over 150,000			45%	38.1%

Note 3: A personal savings allowance applies at a 0% tax rate, applied after the personal

allowance have been applied as follows:

Basic rate taxpayers 1,000

Higher rate taxpayers 500

Additional rate taxpayers Nil

Note 4: The first 2,000 of dividend income is taxed at 0% for all taxpayers.

Note 5: The first 7,500 of rental income from renting part of the taxpayers home is tax

free if rent a room relief is claimed.

Pension Scheme Limits

Annual allowance	40,000
Lifetime allowance	1,055,000
Maximum contribution than can qualify for tax relief without earnings	3,600

Search Aa-POE EEEE AT A.0.A. AaBbcc AaBbce AaBbcc AaBbcc 1 CIMA Re.. Heading 1 1 Normal 1 No Spac... Paragraph Styles Tax Rates and Allowances 2019/20 Income Tax Main Personal Allowances Personal allowance 12,500 Income limit for personal allowance (Note 1) 100,000 Marriage allowance (Note 2) 1,250 Note 1: When income exceeds the limit a clawback applies reducing the personal D allowance by 1 for every 2 above the limit. Note 2: Spouses/civil partners are able to transfer 1,250 of their unused personal allowance to their partner if both are basic rate taxpayers. Tax Rates and Taxable Bands Basic rate 0 - 37,500 Normal rate Dividend rate 20% 7.5% Higher rate 37,501 - 150,000 40% 32.5% Additional rate Over 150,000 45% 38.1% Note 3: A personal savings allowance applies at a 0% tax rate, applied after the personal allowance have been applied as follows: | Aa- A E EEEE AT O-A- 9. - AaBbcc AaBbcc AaBbcc AaBbcc A 1 CIMA Re... Heading 1 T Normal 1 No Spac.. Paragraph Styles Note 3. A personal savings allowance applies at a 0% tax rate, applied after the personal allowance have been applied as follows: Basic rate taxpayers 1,000 Higher rate taxpayers 500 Additional rate taxpayers Nil Note 4. The first 2,000 of dividend income is taxed at 0% for all taxpayers. Note 5. The first 7,500 of rental income from renting part of the taxpayer's home is tax free if rent a room relief is claimed Pension Scheme Limits Annual allowance Lifetime allowance Maximum contribution than can qualify for tax relief without earnings 40,000 1,055,000 3,600 PLEASE TURN OVER dom o CE Aa. A SEALT D-A- AaBbCcDc AaBbCd AaBbcc AaBbCc A TCIMA Re.. Heading 1 1 Normal 1 No Spac... He Paragraph Styles ISA Annual Subscription Limit Overall Individual savings Accounts limit Lifetime ISA (18 to 40) Help to buy ISA 1,000 (initial maximum investment) then 200 per month 20,000 4,000 Relevant to Employees Authorised Mileage Allowances When an employee has business usage of their own car Up to 10,000 miles Over 10.000 miles 45p 25p Car Benefit Percentage 0-50 g/km 51 - 75 g/km 76 - 94 g/km 95g/km (the base level of emissions) Each additional 5 g/km above the base level Diesel additional surcharge Maximum rate 16% 19% 22% 23% +1% +4% 37% Car Fuel Benefit The base figure for calculating car fuel benefits 24,100 Relevant to Traders Aa. AO E. A D A AaBbCcDc AaBbcc AaBbcc AaBbCc A 1 CIMA Re... Heading 1 1 Normal 1 No Spac... He Paragraph Styles Relevant to Traders Capital Allowances Plant and Machinery Main pool Special rate pool Energy & water efficient equipment 18% 6% 100% Motor Cars CO2 emissions up to 50 grams per kilometre CO2 emissions over 50 grams up to 110 grams per kilometre CO2 emissions over 110 grams per kilometre Annual Investment allowance Rate of allowance Expenditure limit 100% 18% 6% 100% 1,000,000 PLEASE TURN OVER O BI Aa- D A AaBbCcDc AaBbcc AaBbcc AaBbc TCIMA Re.. Heading 1 1 Normal 1 No Spac.. Paragraph Capital Gains Tax Styles Annual exemption Standard rate of tax (assets other than residential property) Higher rate of tax (assets other than residential property) Standard rate of tax on residential property Higher rate of tax on residential property 12,000 10% 20% 18% 28% Entrepreneurs' relief: For trading businesses and companies held for at least one year (minimum 5% employee shareholding) Lifetime limit of gains Rate of tax 10,000,000 10% Lease Premium Formulae Capital proportion is 2% (n-1) P Chattels Formulae Gains restricted to 5/3(gross proceeds - 6,000) National Insurance (not contracted-out rates) Primary Class 1 employees 0 - 8.632 per year Above 8,632 - 50,000 per year Above 50,000 per year Secondary % Nil 12.0 2.0 Mailings Review View Help Design Layout Search Aa- A E AL D-A- AaBbCcDc AaBbcc AaBbcc AaBbcc AaBb 1 CIMA Re... Heading 1 1 Normal No Spac... Heading Styles Paragraph Above 70,05Z 150,000 per your Above 50,000 per year TZ.O 20 Secondary Class 1 employer 0 - 8,632 per year Above 8,632 per year Nil 13.8 Class 1A employer On benefits in kind 13.8 Sole traders Class 2 3pw Class 4 Paid weekly If earnings are above the small profits threshold of 6,365 pa 0 - 8,632 per year Above 8,632 - 50,000 per year Above 50,000 per year Nil 9.0 2.0 PLEASE TURN OVER om Review View Help Design Layout O Search - Aa- A E EEEE 2 2.A. AaBbcc AaBbCd AaBbcc AaBbcc A TCIMA Re... Heading 1 1 Normal 1 No Spac... He Paragraph Styles Rates of Interest Official rate of interest for benefits in kind Rate of interest on underpaid tax Rate of interest on overpaid tax 2.50% 3.25% 0.50% Supplementary Instructions 1. You should assume that the tax rates and allowances for the tax year 2019/20 will continue to apply for the foreseeable future unless you are instructed otherwise, 2. Calculations and workings need only be made to the nearest . All apportionments should be made to the nearest Search Aa-POE EEEE AT A.0.A. AaBbcc AaBbce AaBbcc AaBbcc 1 CIMA Re.. Heading 1 1 Normal 1 No Spac... Paragraph Styles Tax Rates and Allowances 2019/20 Income Tax Main Personal Allowances Personal allowance 12,500 Income limit for personal allowance (Note 1) 100,000 Marriage allowance (Note 2) 1,250 Note 1: When income exceeds the limit a clawback applies reducing the personal D allowance by 1 for every 2 above the limit. Note 2: Spouses/civil partners are able to transfer 1,250 of their unused personal allowance to their partner if both are basic rate taxpayers. Tax Rates and Taxable Bands Basic rate 0 - 37,500 Normal rate Dividend rate 20% 7.5% Higher rate 37,501 - 150,000 40% 32.5% Additional rate Over 150,000 45% 38.1% Note 3: A personal savings allowance applies at a 0% tax rate, applied after the personal allowance have been applied as follows: | Aa- A E EEEE AT O-A- 9. - AaBbcc AaBbcc AaBbcc AaBbcc A 1 CIMA Re... Heading 1 T Normal 1 No Spac.. Paragraph Styles Note 3. A personal savings allowance applies at a 0% tax rate, applied after the personal allowance have been applied as follows: Basic rate taxpayers 1,000 Higher rate taxpayers 500 Additional rate taxpayers Nil Note 4. The first 2,000 of dividend income is taxed at 0% for all taxpayers. Note 5. The first 7,500 of rental income from renting part of the taxpayer's home is tax free if rent a room relief is claimed Pension Scheme Limits Annual allowance Lifetime allowance Maximum contribution than can qualify for tax relief without earnings 40,000 1,055,000 3,600 PLEASE TURN OVER dom o CE Aa. A SEALT D-A- AaBbCcDc AaBbCd AaBbcc AaBbCc A TCIMA Re.. Heading 1 1 Normal 1 No Spac... He Paragraph Styles ISA Annual Subscription Limit Overall Individual savings Accounts limit Lifetime ISA (18 to 40) Help to buy ISA 1,000 (initial maximum investment) then 200 per month 20,000 4,000 Relevant to Employees Authorised Mileage Allowances When an employee has business usage of their own car Up to 10,000 miles Over 10.000 miles 45p 25p Car Benefit Percentage 0-50 g/km 51 - 75 g/km 76 - 94 g/km 95g/km (the base level of emissions) Each additional 5 g/km above the base level Diesel additional surcharge Maximum rate 16% 19% 22% 23% +1% +4% 37% Car Fuel Benefit The base figure for calculating car fuel benefits 24,100 Relevant to Traders Aa. AO E. A D A AaBbCcDc AaBbcc AaBbcc AaBbCc A 1 CIMA Re... Heading 1 1 Normal 1 No Spac... He Paragraph Styles Relevant to Traders Capital Allowances Plant and Machinery Main pool Special rate pool Energy & water efficient equipment 18% 6% 100% Motor Cars CO2 emissions up to 50 grams per kilometre CO2 emissions over 50 grams up to 110 grams per kilometre CO2 emissions over 110 grams per kilometre Annual Investment allowance Rate of allowance Expenditure limit 100% 18% 6% 100% 1,000,000 PLEASE TURN OVER O BI Aa- D A AaBbCcDc AaBbcc AaBbcc AaBbc TCIMA Re.. Heading 1 1 Normal 1 No Spac.. Paragraph Capital Gains Tax Styles Annual exemption Standard rate of tax (assets other than residential property) Higher rate of tax (assets other than residential property) Standard rate of tax on residential property Higher rate of tax on residential property 12,000 10% 20% 18% 28% Entrepreneurs' relief: For trading businesses and companies held for at least one year (minimum 5% employee shareholding) Lifetime limit of gains Rate of tax 10,000,000 10% Lease Premium Formulae Capital proportion is 2% (n-1) P Chattels Formulae Gains restricted to 5/3(gross proceeds - 6,000) National Insurance (not contracted-out rates) Primary Class 1 employees 0 - 8.632 per year Above 8,632 - 50,000 per year Above 50,000 per year Secondary % Nil 12.0 2.0 Mailings Review View Help Design Layout Search Aa- A E AL D-A- AaBbCcDc AaBbcc AaBbcc AaBbcc AaBb 1 CIMA Re... Heading 1 1 Normal No Spac... Heading Styles Paragraph Above 70,05Z 150,000 per your Above 50,000 per year TZ.O 20 Secondary Class 1 employer 0 - 8,632 per year Above 8,632 per year Nil 13.8 Class 1A employer On benefits in kind 13.8 Sole traders Class 2 3pw Class 4 Paid weekly If earnings are above the small profits threshold of 6,365 pa 0 - 8,632 per year Above 8,632 - 50,000 per year Above 50,000 per year Nil 9.0 2.0 PLEASE TURN OVER om Review View Help Design Layout O Search - Aa- A E EEEE 2 2.A. AaBbcc AaBbCd AaBbcc AaBbcc A TCIMA Re... Heading 1 1 Normal 1 No Spac... He Paragraph Styles Rates of Interest Official rate of interest for benefits in kind Rate of interest on underpaid tax Rate of interest on overpaid tax 2.50% 3.25% 0.50% Supplementary Instructions 1. You should assume that the tax rates and allowances for the tax year 2019/20 will continue to apply for the foreseeable future unless you are instructed otherwise, 2. Calculations and workings need only be made to the nearest . All apportionments should be made to the nearest