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Math Help - Taxes in the UK

  1. #1
    Senior Member chella182's Avatar
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    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 \pounds36,040 has come from? Why minus the \pounds4,895 from their income? I know it's probably something really simple, but it's not mentioned anywhere in my notes.
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  2. #2
    Grand Panjandrum
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    Quote Originally Posted by chella182 View Post
    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? 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

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  3. #3
    Senior Member chella182's Avatar
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    Cheers. My lecturer for this module was useless, so her missing stuff out of the notes figures.
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  4. #4
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    e^(i*pi)'s Avatar
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    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
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  5. #5
    Senior Member chella182's Avatar
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    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!
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