Income tax, national insurance and capital gains tax
Income tax computation
Build the computation in a fixed order: trading income, employment income, property income, then savings income, then dividends. Deduct reliefs such as trading losses and gross pension contributions, then the personal allowance (£12,570, tapered by £1 for every £2 of adjusted net income above £100,000), then apply the basic, higher and additional rate bands. Gift aid and personal pension contributions extend the basic and higher rate limits, which matters for CGT rate planning.
National insurance
Employees pay Class 1 (8% main, 2% above the upper earnings limit); the self-employed pay Class 2 (small profits threshold) and Class 4 (6% between the lower and upper profits limits, 2% above); employers pay 13.8% above the secondary threshold. Benefits in kind can attract Class 1A.
Capital gains tax
Identify the disposal, compute the gain (proceeds less allowable cost and enhancement expenditure), deduct the annual exempt amount (£3,000), and tax the balance at 18% or 24% depending on remaining basic rate band, or at the business asset disposal relief rate for qualifying shares. Learn chattels (£6,000 marginal relief), part disposals, the share identification rules and BADR's conditions: 5% ordinary shareholding, two years, trading company.
Traps
The dividend allowance and personal savings allowance are nil-rate bands, not exemptions - they still consume band. Watch the 60% effective rate created by the allowance taper, and BADR's £1m lifetime limit.
Worked example
A sale of shares in her personal trading company produces a gain of £400,000. BADR applies: (£400,000 − £3,000) × 14% = £55,580.