[size=1.2em]This article looks at the changes made by the Finance Act 2014, and should be read by those of you who are taking Paper F6 (UK) in an exam in the financial year 1 April 2015 to 31 March 2016. The aim of the article is to summarise the changes made by the Finance Act 2014 and to look at the more important changes in greater detail. The article also includes details of legislation that was enacted prior to the Finance Act 2014, but has only come into effect from 6 April 2014. The article does not refer to any amendments to the Paper F6 (UK) syllabus coverage unless they directly relate to legislative changes and candidates should therefore consult the Paper F6 (UK)Syllabus and Study Guide for the financial year 1 April 2015 to 31 March 2016 for details of such amendments.
[size=1.2em]Please note that if you are sitting Paper F6 (UK) in December 2014, you will be examined on the Finance Act 2013, which is the legislation as it relates to the tax year 2013–14. Therefore this article is not relevant to you, and you should instead refer to the Finance Act 2013 article published on the ACCA website (see 'Related links').
INCOME TAX[size=1.2em]Rates of income tax
The rates of income tax for the tax year 2014–15 are as follows:
Normal ratesDividend rates
Basic rate￡1 to ￡31,86520%10%
Higher rate￡31,866 to ￡150,00040%32.5%
Additional rate￡150,001 and over45%37.5%
[size=1.2em]A starting rate of 10% applies to savings income where it falls within the first ￡2,880 of taxable income. If non-savings income exceeds ￡2,880 the starting rate of 10% for savings does not apply. In this case savings income is taxed at the basic rate of 20% if it falls below the higher rate threshold of ￡31,865, at the higher rate of 40% if it falls between the higher rate threshold of ￡31,865 and the additional rate threshold of ￡150,000, and at the additional rate of 45% if it exceeds the additional rate threshold of ￡150,000.
[size=1.2em]Personal allowances
Personal allowances for the tax year 2014–15 are as follows.
Personal allowance
Born on or after 6 April 1948
￡10,000
Born between 6 April 1938 and 5 April 1948
￡10,500
Born before 6 April 1938
￡10,660
Income limit
Personal allowance￡100,000
Personal allowance (born before 6 April 1948)
￡27,000
[size=1.2em]The normal personal allowance of ￡10,000 is gradually reduced to nil where a person’s adjusted net income exceeds ￡100,000. Adjusted net income is net income (total income less deductions for loss relief and interest payments) less the gross amount of personal pension contributions and gift aid donations.acca考试时间
[size=1.2em]The personal allowance is reduced by ￡1 for every ￡2 that a person’s adjusted net income exceeds ￡100,000. Therefore, a person with adjusted net income of ￡120,000 or more is not entitled to any personal allowance (120,000 – 100,000 = 20,000/2 = ￡10,000). Where a person has an adjusted net income of between ￡100,000 and ￡120,000, the effective marginal rate of income tax is 60%. This is the higher rate of 40% on income plus an additional 20% as a result of the withdrawal of the personal allowance. In this situation it may be beneficial to make additional personal pension contributions or gift aid donations.
[size=1.2em]The same reduction applies in respect of the higher personal allowances available to people born before 6 April 1948. Where a person’s adjusted net income exceeds ￡27,000, the higher personal allowances are reduced to a minimum of the normal personal allowance of ￡10,000. However, there will then be a further reduction if adjusted net income exceeds ￡100,000. This means that regardless of a person’s age, no personal allowance will be available where their adjusted net income is ￡120,000 or more.
[size=1.2em]EXAMPLE 1
Ingrid was born on 29 May 1974. For the tax year 2014–15 she has a salary of ￡37,000, building society interest of ￡800 (net) and dividends of ￡9,000 (net). Her income tax liability is as follows:
￡
Employment income37,000
Building society interest
(800 x 100/80)1,000
Dividends (9,000 x 100/90)
10,000
______
48,000
Personal allowance
(10,000)
______
Taxable income
38,000
______
Income tax:
28,000 at 20%
3,865 at 10%
6,135 at 32.5%
5,600
386
1,994
______
Tax liability7,980
______
[size=1.2em]EXAMPLE 2 acca注册
June was born on 3 August 1966. For the tax year 2014–15 she has a trading profit of ￡184,000. Her income tax liability is as follows:
￡
Trading profit
184,000
Personal allowance
Nil
______
Taxable income
184,000
______
Income tax:
31,865 at 20%
118,135 at 40%
34,000 at 45%
6,373
47,254
15,300
______
Tax liability68,927
______
- No personal allowance is available as June’s adjusted net income of ￡184,000 exceeds ￡120,000.
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EXAMPLE 3
Trevor was born on 23 January 1984. For the tax year 2014–15 he has a trading profit of ￡132,000, building society interest of ￡3,200 (net) and dividends of ￡34,200 (net). The income tax payable by Trevor is as follows:
￡
￡
Trading profit
132,000
Building society interest
(3,200 x 100/80)
4,000
Dividends
(34,200 x 100/90)
38,000
______
174,000
Personal allowance
Nil
______
Taxable income
174,000
______
Income tax:
31,865 at 20%
104,135 at 40%
14,000 at 32.5%
24,000 at 37.5%
6,373
41,654
4,550
9,000
______
Tax liability61,577
Tax suffered at source
Dividends
(38,000 at 10%)
Building society
interest
(4,000 at 20%)
3,800
800
______
(4,600)
______
56,977
______
- The 10% tax credit on dividend income is available regardless of the rate of tax payable.
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EXAMPLE 4 acca考试地点
May was born on 19 December 1959. For the tax year 2014–15 she has a trading profit of ￡159,000. During the year May made net personal pension contributions of ￡32,000 and a net gift aid donation of ￡9,600. Her income tax liability is as follows:
￡
Trading profit
159,000
Personal allowance
(6,500)
______
Taxable income
152,500
______
Income tax:
83,865 at 20%
68,635 at 40%
16,773
27,454
______
Tax liability44,227
______
- The gross personal pension contributions are ￡40,000 (32,000 x 100/80) and the gross gift aid donation is ￡12,000 (9,600 x 100/80).
- May’s adjusted net income is therefore ￡107,000 (159,000 – 40,000 – 12,000), so her personal allowance of ￡10,000 is reduced to ￡6,500 (10,000 – 3,500 (107,000 – 100,000 = 7,000/2)).
- The basic and higher rate tax bands are extended to ￡83,865 (31,865 + 40,000 + 12,000) and ￡202,000 (150,000 + 40,000 + 12,000) respectively.
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EXAMPLE 5
Ali was born on 12 March 1947. For the tax year 2014–15 he has pension income of ￡11,900 and bank interest of ￡4,000 (net). His income tax liability is as follows:
￡
Pension income11,900
Bank interest
(4,000 x 100/80)5,000
_______
16,900
Personal allowance
(10,500)
_______
Taxable income
6,400
_______
Income tax:
1,400 at 20%
1,480 at 10%
3,520 at 20%
280
148
704
_______
Tax liability
1,132
_______
- Ali qualifies for the higher personal allowance of ￡10,500 as he was born between 6 April 1938 and 5 April 1948.
- Non-savings income is ￡1,400 (11,900 – 10,500), so ￡1,480 (2,880 – 1,400) of the savings income is taxed at the starting rate of 10%. The remainder of the savings income is taxed at the basic rate of 20%.
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