# Thread: Taxes in the UK

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

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 $\displaystyle \pounds40,935-\pounds4,895=\pounds36,040$

But what I don't understand is where that $\displaystyle \pounds36,040$ has come from? Why minus the $\displaystyle \pounds4,895$ from their income? I know it's probably something really simple, but it's not mentioned anywhere in my notes.

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

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 $\displaystyle \pounds40,935-\pounds4,895=\pounds36,040$

But what I don't understand is where that $\displaystyle \pounds36,040$ has come from? Why minus the $\displaystyle \pounds4,895$ from their income? 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

3. Cheers. My lecturer for this module was useless, so her missing stuff out of the notes figures.

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

HM Revenue & Customs: Tax codes - the basics

Just some random trivia XD

5. 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!