BTAX CBT (AQ2010), Question 2.10 Partnership Tax Returns / How to complete boxes 22 and 25?

MyScienceProject

Hello there. This is the first time I have used the AAT forums and I was wondering if anyone could give me some help with an exam question (Question 2.10 in the Business Tax CBT - AQ2010)?

How do you calculate the gross amount of interest received/the figure to be entered into box 22 when you are only given the net amount of interest in the question? Also, how is the Income Tax taken off/the figure to be entered into box 25 calculated?

The 'Taxed interest - net' figure provided in the data is £2,120 but the model answers show that £2,650 should be entered into box 22. How do I arrive at £2,650 by using the net amount of £2,120?

The answers also show that £530 should be entered into box 25 'Income Tax taken off'. I assume this figure shows the amount of tax that has been deducted from the gross amount of interest. How do I calculate the income tax taken off?

I know that it would have been much easier to follow my question with an image of the exam question but I couldn't work out how to paste a URL of the image.

Any replies would be greatly appreciated as I plan to take my exam in a couple of weeks.

Thank you

CeeJaySix

Income tax is 20% (basic rate tax is often deducted at source from interest). Therefore the net figure is 80% of the gross amount.

To calculate the gross figure you therefore divide net by 80 and multiply by 100 - otherwised expressed as x100/80.

2,120 (net) x 100/80 = 2,650.

The income tax taken off is 20% of gross as above. 2,650 x 20% = 530. A useful check is that gross less tax = net: 2,650 - 530 = 2,120.

MyScienceProject

Thanks very much for your help CeeJaySix it is truly appreciated.

I have a couple of further queries about what you said:

Firstly, will the income tax deducted from interest normally be at 20% / basic rate? Are there any situations where the rate will be higher?

Secondly, in basic terms what does the term 'deducted at source' mean?

Any replies would be appreciated.

Thanks

amyjayne27

Hi Myscienceproject

Deducted at source means that tax has been deducted from the gross amount before you receive it. Bank interest will always be 20%, and you always gross it up when entering on a tax return, then show the tax deducted seperately.

I'm sure you know this already but dividends also need to be grossed up, and instead of 20% its 10% so the calculation is net amount/90 x 100. However this is not tax deducted, its a tax credit.

HTH

MyScienceProject

Hello amyjayne27 thanks a lot for your help and information.

Actually I didn't know that net dividends needed to be grossed up, or that the income tax charged on dividends is 10%. But thanks anyway for the information.

I don't think entering dividends on the partnership tax return is an assessable topic for my unit, but if it pops up I am now prepared.

I am a novice with very little practical experience so I am still trying to grasp the basics.

Thanks very much

amyjayne27

Hey,

No problem.

If you are doing Business Tax at level 4 you may well need to enter dividends on the tax return. You gross them up as I described above and it goes to the box Franked Investment Income.

How far in the book are you out of interest?

Let me know if I can be of any further help as I have my exam on Monday so it would be good revision!