Income Tax and NIC for Individuals
Income tax computation
Build the computation by taxable income: total income less reliefs (e.g. trading losses, qualifying loan interest, gift aid and pension contributions extend the basic and higher rate bands). Know the personal allowance (£12,570) and its abatement by £1 for every £2 of adjusted net income above £100,000, fully withdrawn by £125,140. Apply the savings and dividend nil-rate bands and remember dividends sit at the top of the income stack, savings above non-savings income.
Rates and allowances
Know the basic (20%), higher (40%) and additional (45%) rates, and the dividend rates (8.75%, 33.75%, 39.35%). Understand gift aid and personal pension grossing-up at 20% and the band extension, and the personal savings allowance (nil for additional-rate taxpayers, £500 for higher rate, £1,000 otherwise).
National insurance
Learn Class 1 primary (employee) and secondary (employer) thresholds and rates, Class 2 and Class 4 for the self-employed, and Class 3 voluntary contributions. NIC is charged per earnings period, not annually - a classic trap when earnings are irregular.
Traps
Do not deduct the personal allowance from savings or dividends before other income; the allowance is set against income in the most beneficial order. Watch the £100,000 abatement and the loss of the personal savings allowance at additional rate. Employment income questions test benefits (company cars, fuel, living accommodation) and the £30,000 termination payment exemption.
Rule of thumb: Extend the basic-rate band by gross gift aid and grossed-up pension contributions (net × 100/80).