Taxes in the UK

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August 3rd 2009, 06:32 AM
chella182

Taxes in the UK
Okay, so this is an example taken from my notes on finance, and I just don't understand it. The question goes...

If the rate of tax on income from employment or self-employment in the UK is currently as follows...
- on the first $\pounds2020$ of taxable income - $10$ %
- on the next $\pounds29,380$ of taxable income - $22$ %
- on all remaining taxable income - $40$ %
what tax is due from a UK resident whose income from employment is $\pounds40,935$ ?

Now I do understand that, but then in the solution on the next page it says

Assuming there are no other allowances or taxable earnings, the taxable income is $\pounds40,935-\pounds4,895=\pounds36,040$

But what I don't understand is where that has come from? Why minus the from their income? (Worried) I know it's probably something really simple, but it's not mentioned anywhere in my notes.
August 3rd 2009, 06:44 AM
CaptainBlack
Quote:
Originally Posted by chella182

Okay, so this is an example taken from my notes on finance, and I just don't understand it. The question goes...

If the rate of tax on income from employment or self-employment in the UK is currently as follows...

on the first $\pounds2020$ of taxable income - $10$ %
on the next $\pounds29,380$ of taxable income - $22$ %
on all remaining taxable income - $40$ %
what tax is due from a UK resident whose income from employment is $\pounds40,935$ ?

Now I do understand that, but then in the solution on the next page it says

Assuming there are no other allowances or taxable earnings, the taxable income is $\pounds40,935-\pounds4,895=\pounds36,040$

But what I don't understand is where that $\pounds36,040$ has come from? Why minus the $\pounds4,895$ from their income? (Worried) I know it's probably something really simple, but it's not mentioned anywhere in my notes.
What the question did not mention is the tax free allowance, the first £4895 has a 0% tax rate (or is untaxed).

CB
August 3rd 2009, 06:46 AM
chella182

Cheers. My lecturer for this module was useless, so her missing stuff out of the notes figures.
August 3rd 2009, 08:16 AM
e^(i*pi)

This must be quite an old example - now the tax free allowance is £6,475 :p

HM Revenue & Customs: Tax codes - the basics

Just some random trivia XD
August 4th 2009, 07:04 AM
chella182

I think the question does say for the tax year 2005/2006, so maybe that's when the slides were written. *shrug* I hope we're not expected to know stuff like that about tax free allowance in the exam!