Income Tax and National Insurance contributions
Build every income tax answer through the same chain: total income → net income (deduct trading losses, grossed-up Gift Aid and relief-at-source pension contributions) → taxable income (deduct the personal allowance) → tax charged by band and by income type. The order of taxation is decisive: non-savings income first, then savings, then dividends, each stacked into the basic, higher and additional bands. The personal allowance (£12,570) is abated by £1 for every £2 of adjusted net income above £100,000, giving an effective 60% marginal rate between £100,000 and £125,140 - a favourite calculation in the exam.
Understand the 0% bands properly: the £5,000 savings starting rate, the personal savings allowance (£1,000 basic, £500 higher, nil additional) and the dividend allowance (£500) are nil-rate bands, not exemptions - the income still uses up band capacity and still counts towards total income. Scottish rates apply only to non-savings, non-dividend income; the Welsh and English bands apply elsewhere.
For NIC, know Class 1 (primary and secondary), Class 1A on benefits in kind (payable by 19 or 22 July following the tax year), Class 1B, Class 2 (no longer mandatory for the self-employed from 2024/25), Class 3 voluntary and Class 4 on trading profits. Salary sacrifice saves Class 1 NIC for both parties but cannot reduce pay below the national minimum wage, and it does not work for childcare vouchers or salary in lieu of pension.
Trap: benefits in kind are taxed on cash equivalent and often attract Class 1A even where no NIC arises on the salary. Trap: the high income child benefit charge is based on adjusted net income of the higher earner, not household income.
Rule of thumb: if adjusted net income is £110,000, the excess is £10,000, so the allowance falls by £5,000 to £7,570.