Tuesday, 15 December 2015

Calculating the UK income tax : a continuation

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

In a previous post Calculating the UK income tax, I showed you how to calculate the UK income tax while focusing on the employment income, read the post before reading this one. Today, I will be looking at other sources of income which includes the trading income the investment income. 

When you have various sources of income lets say you have gotten income from employment, trading and investments then the employment income will be taxed first, followed by the trading income, and then the investment income afterwards. For example let's say Ahmed has gotten an employment income of £34,000, a trading income of £10,000, an investment income  of £5,000. The personal allowance of £10,600 will be deducted from £34,000. It will remain £23,400. It will be taxed at 20%, that will give you £4,680. From the previous post on taxes you must have noted that the basic rate band falls between 0 to £31,785. So £31,785 minus £23,400 you will get £8,385. Thus part of the trading income falls into the basic rate band, thus £8,385 will be taxed at 20% which will give us £1,677. Then the remaining of the trading income (£10,000 - £8,385), £1615 will be taxed at 40% as well as the £5,000  (assuming no form of taxes have been taken from it). Its going to be £1615 + £5000 = £6615. £6615 taxed at 40% will be £2,646. Overall tax to be paid will be £4,680 + £1677 + £2646 = £9003

A. Basic rate band     (£23,400 × 20%)= £4680
                                       (£8,385 × 20%) =£1677
B. Higher rate band  (£6,615 × 40%)= £2646   A + B                                                         £9,003

Check out for part 3 of this article. Keep checking my blog regularly, cheers!

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