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

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


Comments

  • CeeJaySix
    CeeJaySix Registered Posts: 645
    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
    MyScienceProject Registered Posts: 4
    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
    amyjayne27 Registered Posts: 314
    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
    MyScienceProject Registered Posts: 4
    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
    amyjayne27 Registered Posts: 314
    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!
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