AAT L4 Personal Tax (UK Income Tax) 3

Question 1

Class 1 National Insurance Contributions (primary) are paid by:

Accepted Answer

Employees on earnings between the primary threshold and upper earnings limit

Answer

Primary Class 1 NICs are paid by employees on earnings between the primary threshold (£12,570 p.a. in 2024/25) and the upper earnings limit (£50,270 p.a.), at 8% in 2024/25.

Question 2

For 2024/25, the income tax rate on dividend income falling in the basic rate band (above the £500 dividend allowance) is:

Accepted Answer

8.75%

Answer

The dividend tax rate for basic rate taxpayers is 8.75% from 2022/23 onwards (previously 7.5%). Higher rate taxpayers pay 33.75%; additional rate taxpayers pay 39.35%.

Question 3

The UK savings income starting rate band of 0% (currently £5,000) applies when:

Accepted Answer

An individual's non-savings income is below the basic rate limit, allowing savings income to be taxed at 0% up to £5,000

Answer

The 0% starting rate for savings applies to savings income falling within the first £5,000 of the basic rate band, but only if an individual's non-savings income does not use up this starting rate band first.

Question 4

Gift aid donations allow higher rate taxpayers to claim additional tax relief by:

Accepted Answer

Extending the basic rate band by the gross donation, reducing higher rate tax

Answer

Gift aid donations extend the basic rate band (and higher rate threshold) by the gross donation amount. Higher rate taxpayers pay 40% on income above the extended band instead of 40% within it — effectively getting 40% relief on their 20% cash donation (the charity claiming 20% basic rate).

Question 5

Which of the following is a tax-allowable deduction for computing employment income?

Accepted Answer

Expenses incurred wholly, exclusively, and necessarily in the performance of the duties of employment

Answer

Deductions against employment income are very restricted: the 'wholly, exclusively, AND necessarily' test is the strictest in UK tax. Commuting, voluntary memberships, and everyday clothing all fail this test.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Personal Tax (UK Income Tax) 3