Personal Tax - problem with answer!

AuntieT Registered Posts: 96 Regular contributor ⭐
I've gone through one of the practice assessments and am not sure with an answer and wanted some feedback please.

Extract from question:

Julie is a higher rate tax payer. She omitted to include £1500 of savings income in her return for 2009/10.

Assuming the error was deliberate without concealment and Julie makes disclosure of the error without prompting, the minimum penalty for the error is.......

The answer according to the book is £120. I work it out as £150. My reasoning..

Minimum penalty 20%. Savings income = £1500, grossed up is £1875. Tax rate 40% Gives £750.

Penalty therefore 20% of £750 = £150.

It seems to me that they haven't "grossed up" the £1500 which I can't understand.

Any explanations?????



  • rehana
    rehana Registered Posts: 61 Regular contributor ⭐
    They must be assuming that the £1500 is the gross amount.
    £1500 x 40% = £600 x 20% = £120.

    misleading though
  • andrewtdk
    andrewtdk Registered Posts: 150 Dedicated contributor 🦉
    Shouldnt you work out the penalty on the tax owing?

    Grossed up it would be 1875 at 40% tax which is 750 however the bank has already stopped basic rate tax of 375 leaving tax owing of 375.

    With a penatly at 20% this still doesnt give you the answer but penalty rates etc seem to have totaly gone out of my head tonight so im sorry i couldnt help you more
  • AuntieT
    AuntieT Registered Posts: 96 Regular contributor ⭐
    Thanks for responding. I've asked at work as well and they came up with the same two responses.

    However they also said that as the question seemed un clear as long as I'd shown my workings.

    Should be fine anyway!
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