A worked example based on 2011-12
Income Tax
This example is looking at income for 2011-12 as this is what will be entered on tax returns issued in April 2012, for submission by 31 January 2013.
We are going to work out Julie’s tax. Julie has a salary from her job at a supermarket, and some self-employed income from designing greeting cards. Julie also has a little savings income. She wants to work out her tax bill for 2011-12. Julie is single and has a daughter, aged seven.
Julie has the following income for 2011-12:
- Gross salary £11,000; tax deducted under PAYE £705 (National Insurance of £452.64 would also been deducted, but is not relevant for this calculation). Her employer gives her a form P60 with these figures in May 2012
- self-employed profits £1,432 (after expenses have been deducted)
- net dividends £270 (i.e. amount actually received); dividend tax credits £30 (this is 10% of the gross dividend (£270+£30) or 1/9th of the net dividend (£270))
- bank interest received £800; tax already deducted £200 tax (20% on Gross interest £1,000)
The relevant rates of tax for 2011/12 are these:
Starting rate band for savings income:
The first £2,560 of savings income is taxed at 10%; but only if non-savings income is less than £10,035 (the personal allowance -£7,475 for those under 65- plus the savings starting rate band of £2,560).
As Julie’s has non-savings income over £10,035, she will not be entitled to the starting rate of 10% for her savings income.
Basic rate band: the first £35,000 of income
- Usually taxed at 20%, but special rules may apply to savings income (as above)
- Dividend income is taxed at 10%
Note: Savings income is treated as the ‘top slice’ of income – that is, all your other income is taxed first, then savings income is added on top and the tax worked out. Dividend income is taxed as the highest part of savings income.
Calculating Julie’s income tax
| Gross Income£ |
Tax already paid |
|
| Gross Salary | 11,000 | 705.00 |
| Self employment | 1,432 | |
| Dividends, plus dividend tax credits (270 + 30) | 300 | 30.00 |
| Gross interest before tax (800 + 200) | 1,000 | 200.00 |
| Totals | 13,732 | 1,135.00 |
| Less: Personal allowance | (7,475) | |
| Taxable income | £6,257 | 935.00 |
| Income tax due As Julie’s total income is less than £35,000, the tax rate is 20% except for dividends. These are taxed at the 10% ‘dividend ordinary rate’ | ||
| Basic rate 20% on £5,957 (all income except dividends) | 1,191.40 | |
| Dividends £300 at 10% | 30.00 | |
| Total tax due on income | 1,221.40 | |
| Tax already paid (as above) | (935.00) | |
| Income tax payable now (tax due, less tax paid) | £286.40 |
Notes:
1) Julie is unable to access the 10% starting rate for savings income as her non-savings income at £12,432 is greater than £10,035
2) Julie could ask HMRC to collect this tax under PAYE from her main employment. She would need to ask by 30 December 2012 at the latest. Alternatively, the tax would be due by 31 January 2013 under self assessment
3) Julie would need to submit a tax return by 31 October 2012 (if she sends in a paper return) or 31 January 2013 (if she submits the return on-line). If she missed these filing dates she will have to pay a £100 fine. Further fines of up to £1,600 over the first 12 months will be due if the return remains outstanding. These fines are not limited to the amount of tax due and would be payable even if no tax were owing.
4) Julie could apply for Tax Credits and help with childcare costs
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