Income tax in the exam

NotesCBE

Exam tips for the income tax questions!

Section A Income tax questions

For the objective questions on income tax, remember that it's an all or nothing game, you either get the allocated marks or you get 0 marks.

All of options are not random numbers but answers that you can actually think are correct if you have made a small mistake (that the examiner has already thought you will make).

To avoid this, you must be very careful to read the exact requirement!

For example, does the question ask you to compute Income Tax Liability or Payable or even Taxable Income?

Does it ask for Class 1 NIC payable by the employer or all Class 1 NIC payable (employer and employee) or all NIC payable by the employer (Class 1 and Class 1A NIC of the employer?

Does the examiner ask for the allowable expenses of the trader to be computed or the disallowable?

Always pick out the easier MCQ first and if there are a few that you find very difficult, do not waste your time on them until the end

Section B Income tax question

You will see a 15 mark Income Tax question which is likely to require an Income tax Computation to be prepared including a combination of employment income with assessable benefits, property income, interest and dividend income.

Remember to keep all of these rules in mind!

Income tax computation

Non-savings Income Savings Income Dividend Income Total
£ £ £ £
Trading Profit x x
Less Trading Loss relief – brought forward (x) (x)
Employment income x x
Property income x x
Dividends from UK companies x x
Building society interest x x
Bank deposit interest x x
Other interest - gross x x
TOTAL INCOME x x x x
Less
Qualifying interest (x) (x)
Other Trading Loss reliefs (x) (x)
NET INCOME x x x x
Less: Personal Allowance (x) (x)
TAXABLE INCOME x x x x

Employment income (salaries, wages) must be included gross in the computation before deduction of PAYE by the employer and these will always be stated gross in the exam question.

Dividends and interest must always be included gross in the computation.

Deductions are always made first from non savings income, savings income and then dividend income.

NotesCBE