Canons of Taxation ( not in the syllabus )

Qualities that a good taxation system should possess

Presented by Adam Smith in his book 'The Wealth of Nations'

Expediency

Diversity

Canons of
taxation
Simplicity

Elasticity

Productivity
 Equity
or
Equality
Certainty

Canons of
taxation Economy

Convenience

Productivity
Pro-forma Income Tax Computation

Particulars Notes

Earned Income
- Employment Income Income from salary and other benefits
- Trading Income Income from business / profession
- Other Earned Income 1

Savings Income
- Interest received gross 2
- Interest received net ( * 100 / 80 ) 3 Tax deducted is 20% unless otherwise

Investment Income
- Property Income Income from a property [ rentals, prem
- Other types of Investment Income 4

Dividend Income
- Dividend received from UK Company Regular dividend from a UK Company
- Other Dividends 5

Total Income

Less: Reliefs
- Qualifying loan interest 6
- Loss Reliefs

Net Income

Less: Personal Allowance 7

Taxable Income

Income Tax calculated at relevant rate 8

Less: Marriage Allowance 9
Less: EIS, SEIS, VCT Relief 10
Less: Double Taxation Relief 11

Income Tax Liability

Less: Tax Credit 12

Income Tax Payable on self assessment

Note : All income included is 'Gross'

Note : Exempt Income is excluded
ome from salary and other benefits in kind received from employer
ome from business / profession

x deducted is 20% unless otherwise told

ome from a property [ rentals, premium etc ]

gular dividend from a UK Company

Exempt Incomes

- Income from Individual Savings Accounts [ ISAs]

- NS & I savings certificate interest
- Interest on repayment of tax
- statutory redundancy payments ***
- scholarship income
- gaming, lottery and premium bond winning
- state benefits paid in event of accident, sickness, disability and infirmity

Income that you have earned but on which no tax is payable

Individual Savings Account [ ISA ]

- This is an instrument through which incomes and gains become tax free
- There are 2 types of ISAs - Cash ISA and Stocks and Shares ISA
- If you hold any cash in a Cash ISA and then you earn any interest income on the
amount deposited, such interest income is exempt from tax
- Any shares that are held in a Stocks and shares ISA, when sold, does not attract CGT
 Non-Savings
Income Level Band Savings
Income
First 37700 GBP Basic Rate Band 20% 20%
37701 - 125140 GBP Higher Rate Band 40% 40%
Above 125140 GBP Additonal Rate Band 45% 45%

Tax income in the following order

- Non savings income [ Employment, Property, Trading Income ]
- Savings Income
- Dividend income

Savings Income Nil Rate Band

STARTING BAND
- Savings income, if it falls in the first 5000 GBP of taxable income, rate is 0%

Nil Rate Band Nil rate band

- Basic rate tax payer 1000 GBP
- Higher rate tax payer 500 GBP
- Additional rate tax payer NIL

Savings Income Starting Rate Band

For Savings
Starting band
to apply, ASK

Is Non saving
income < 5000

YES NO

No Starting
band benefit
 Starting Band No Starting
calculation band benefit
applies

Dividend Income Nil Rate Band

- First 1000 of dividend income is always @ 0%

 Dividend
8.75% This table will be given in the exam
33.75% No need to learn
39.35%

Starting rate band

Situation I [ No Non savings Income, Savings Income below 5000 ]

Non savings Income 0

Savings Income 3000

Total taxable income is 3000

Does Savings Income fall within the first 5000 of taxable income ?
YES
So, no tax

Situation II [ No Non savings income, Savings Income above 5000 ]

Non savings Income 0

Savings Income 6000

Total taxable income is 6000

Does Savings Income fall within the first 5000 of taxable income ?
5000 of the total savings income falls within first 5000 of taxable income whereas
1000 does not fall
So, no tax on 5000 : Starting band

We are not commenting on the balance 1000 right now

[ 6000 Savings Income ( - ) 5000 taxed at ZERO % in starting rate band ]

No Starting
band benefit
No Starting
band benefit
Situation III [ Both Savings and Non Savings Income and both below 5000 ]

Non savings Income 3000

Savings Income 3000

Total taxable income is 6000

Does Savings Income fall within the first 5000 of taxable income ?
Non Savings income makes up for 3000 GBP out of the first 5000 of taxable income
That means, out of the first 5000 of taxable income, 3000 is used up by non savings oncome
That also means, only 2000 from the overall savings income of 3000 falls within the first 5000
So, no tax on 2000 savings income
We are not commenting on the balance 1000 right now [ 3000 savings - 2000 staring rate band = 1000 ]

Situation IV [ Non Savings > 5000; Savings < 5000 ]

Non savings Income 7000

Savings Income 3000

Total taxable income is 10000

Rule says, levy tax on non savings income first
Non savings income is 7000 and it ends up using the entire first 5000 of taxable income
So, no scope left for taxing savings income at ZERO %
 Situation V [ Non Savings < 5000; Savings < 5000 ; Total < 5000 ]

Non savings Income 1000

Savings Income 3000

Total taxable income is 4000

Rule says, levy tax on non savings income first
Non savings income uses up 1000 out of the first 5000
avings oncome Unused amount in first 5000 after taxing this non savings income is 4000
hin the first 5000 Entire savings income of 3000 falls in the first 5000 bracket
So, no tax on savings income
0 staring rate band = 1000 ]
5000 ; Total < 5000 ]

n savings income is 4000

5000 bracket
Other Earned Income
includes
- Pension from former employment
- state pensions
- profits from furnished holiday accommodation
Witholding Tax

Bhupendra is my employee and his salary is 100000

HMRC has mandated that I , as the employer [ payer of income ] should
compulsorily deduct 10000 from the gross amount payable and deposit
this 10000 with HMRC.
So, when I actually pay cash to Bhupendra for his salary, I will transfer
90000 to his bank account

During the year, Bhupendra earned other incomes too, apart from salary
And on such total income, after making all deductions and everything
his final tax liability came down to 12500

Now, Bhupendra's employer had already deposited 10000 with HMRC

So, he is now required to pay only 2500 [ balance amount ]

This 10000 can be called by any of the following names

- Witholding Tax
- PAYE [ Pay as you earn ]
- Tax deducted at source [ TDS ]
Entries in the books of Satyamedh [ employer : Payer ]

Salary Expense A/c Dr 100,000

To Bank A/c 90,000
To TDS Payable. A/c 10,000

TDS Payable A/c Dr 10,000

To Bank A/c 10,000

Entries in the books of Bhupendra [ employee : payee ]

Bank A/c Dr 90,000

TDS Receivable A/c Dr 10,000
To Salary Income A/c 100,000

Tax Expense A/c Dr 12,500

To Tax Payable A/c 12,500

Tax Payable A/c Dr 12,500

To TDS Receivable A/c 10,000
To Bank 2,500
 Interest Received

Gross

Include 'as it is'

- Bank and building society interest

- Gilt edged security interest
- NS & I Bank Interest
- Interest from quoted corporate bonds
issued by UK resident companies
- Foreign Interest ( gross of overseas tax
suffered)

Gilt edged security : These are Government securities

Quoted Bonds : Bonds which are listed on the stock exchange

Received

Net

Gross up and then

include

Gross Income Deduct Net Receipt

- Interest from unquoted corporate 100 -20 80
bonds issued by UK resident companies 8000 6400
to individuals
- Interest from an 'Interest in possession [ 8000 = 6400 * 100 / 80 ]
trust' Cross multiplication

Note
- If these two items are given and you are told that interest received
say 'x' GBP, then
- Gross up the interest by doing [ x * 100 / 80 ] and include this am
income calculation

** the 100 / 80 calculation is only for interest from unquoted bonds

d you are told that interest received net is

[ x * 100 / 80 ] and include this amount in taxable

y for interest from unquoted bonds

Other types of investment income
includes
- annuity income
- non savings income from an IIP Trust ( * 100 / 80 ) To be done in trust
- Discretionary income ( * 100 / 55 ) To be done in trust
- other foreign income ( gross of tax suffered ) To be covered in overseas taxation
- dividends from a Real Estate Investment Trust [ REIT ] ( * 100 /80 ) To be done in Property Income

Other Dividend Income

- Dividend from an IIP Trust ( * 100 / 91.25 ) To be done in trust
- foreign dividend ( gross ) To be covered in overseas taxation
be done in trust
be done in trust
be covered in overseas taxation
be done in Property Income

be done in trust
be covered in overseas taxation
Question

Eugenie received bank interest of 6000 during the tax year 2023 / 24

Calculate tax payable in each of the following cases

a) Earned employment income of 15,150 [ PAYE of 516 ]
b) Earned employment income of 29,650 [ PAYE of 3,416 ]
c) Earned employment income of 46,000 [ PAYE of 6,686 ]

Solution

Case ( a )

Particulars Non Savings Savings Dividend

Employment Income 15,150 -
Bank Interest 6,000 -
Total 15,150 6,000 -
Less : Personal Allowance (12,570) - -

Taxable Income 2,580 6,000 -

Income Tax Calculation

2580 of Non Savings @ 20% Basic Rate 516

2420 of Savings Income @ ZERO Starting Rate -

1000 of Savings Income @ZERO SNRB

2580 of Savings Income @ 20% Basic Rate 516

Total Tax 1,032

Less : PAYE Credit (516)

Tax Payable 516

Case ( b )

Particulars Non Savings Savings Dividend

Employment Income 29,650
Bank Interest 6,000
Total 29,650 6,000 -
Less : Personal Allowance (12,570) -

Taxable Income 17,080 6,000 -

Income Tax Calculation
Non savings Income : 17080 @ 20% Basic Rate 3,416
Savings Income : 1000 @ 0% SNRB -
Savings Income : 5000 @ 20% Basic Rate 1,000

Total Tax Liability 4,416

Less : PAYE Credit (3,416)

Tax Payable 1,000

Case ( c )

Particulars Non Savings Savings Dividend

Employment Income 46,000
Bank Interest 6,000
Total 46,000 6,000 -
Less : Personal Allowance (12,570) -

Taxable Income 33,430 6,000 -

Income Tax Calculation

Non Savings : 33430 @ 20% Basic Rate 6,686

Savings Income : 500 @ 0% SNRB -
Savings Income : 3770 @ 20% Basic Rate 754
Savings Income : 1730 @ 40% Higher Rate 692

Total Tax 8,132

Less : PAYE Credit (6,686)

Tax Payable 1,446

 ** Note - PAYE
PAYE - Stands for Pay as you Earn Scheme
This is the equivalent for TDS, deducted by employer from
your salary

2420
Total
15,150
6,000 Amount of Personal Allowance is GBP 12,570
21,150 This PA should be adjusted in the most beneficial order
(12,570) In most cases, the order is Non savings - Savings - Dividend

8,580
Is Non Savings Income < 5000 ? YES
So, Starting rate band will apply to savings income
Tax non savings income first
2580 of Non savings income falls in the first 5000 of taxable income
How much is left unused from this 5000 ?
5000 ( - ) 2580 = 2420

So, out of 6000 of savings income; 2420 falls within the first 5000 of taxable income
So, ZERO % tax levied as per "Starting Rate Band"

Total savings income is 6000

2420 goes under starting rate band
How much is still untaxed ? 6000 ( - ) 2420 = 3580
Basic rate payer : So, Nil rate band of 1000
How much is untaxed now ? 3580 ( - ) 1000 = 2580
On 2580, apply the basic rate

Total
29,650
6,000 The order of adjustment of PA is, in most cases, Non Savings - Savings - Dividend
35,650
(12,570) Is Non Savings Income < 5000 ? NO
So, Starting rate band is not applicable for savings income
23,080
 Total
46,000
6,000
52,000
(12,570) Order of adjusting Personal Allowance
Non Savings - Savings - Dividend [ in most cases ]
39,430
Higher rate tax payer
Savings income Nil rate band : 500

0 - 37700
Band is 0 - 37700
33430 of non savings and 500 of savings has been taxed so far, total will be 33930
How much of the basic rate band is still unused ?
37700 ( - ) 33430 ( - ) 500 = 3770

Total savings income = 6000

500 was SNRB and 3770 was taxed in basic band
How much is still untaxed ? 6000 ( - ) 500 ( - ) 3770 = 1730
1730 falls in higher rate band, taxed @ 40%
f taxable income

ngs - Dividend
l will be 33930
Personal Allowance

** HMRC does not want you to pay tax on a certain basic level of income
It is assumed that this basic amount which you earn goes towards basic necessities of life
and hence no tax is levied on this value
Income earned over and above this value is taxed
- Because this is for your basic, non-negotiable PERSONAL needs, it is called "Personal Allowance"

For tax year 2023/24

Personal allowance 12570

Even if the person dies during the year, PA remains at 12570

Order of adjusting PA ( most beneficial order )

- Non Savings Income This order is usually the most beneficial o
- Savings Income But in Q - 5 in this sheet, a different order
- Dividend Income

Reduction of Personal allowance

If income is in excess of 100000, PA is reduced

This is based on calculation of "Adjusted Net Income" [ ANI ]

Net Income XX
Less: Gross gift aid donations ( not examined at ATX ) XX
Less: Gross Personal pension contribution XX

Adjusted Net Income XX

Basic PA is reduced by
: 50% of [ ANI - 100000 ]
: Reduced PA is rounded up

Example I
Case I Case II Case III
Net Income 80,000 117,800 104,000
Less: Gross Gift aid Donations - - -
Less: Gross Personal Pension Contribution (6,000) (6,000) (6,000)

Adjusted Net Income 74,000 111,800 98,000

Is Adjusted Net Income > 100000 No Yes No
Will PA be reduced No Yes No
Original Personal Allowance [ PA ] 12,570 12,570 12,570
PA reduced by [ ANI - 100000 ] * 50% - 5,900 -
Updated PA 12,570 6,670 12,570

In case IV, ANI is 144000 and PA reduction calculation should be [ 144000 - 100000 ] * 50% = 22000
But, PA is 12570
So, PA reduction is restricted to 12570

Personal Allowance is available as long as Adjusted Net Income is 125140

If ANI exceeds 125140, PA is ZERO
onal Allowance"

lly the most beneficial order

s sheet, a different order is used as that is more beneficial

Case IV Case V
130,000 150,000
- -
(6,000) (6,000)

124,000 144,000
Yes Yes
Yes Yes
12,570 12,570
12,000 12,570
 570 -

* 50% = 22000
Question

Andrei received the following income in the tax year 2022 / 23

Employment Income 55000 GBP [ PAYE of 9,432 deducted ]
Dividends received 6000 GBP

Calculate tax payable

Solution

Particulars Non Savings Savings Dividend

Employment 55,000 - -
Dividend - - 6,000
Total Income 55,000 - 6,000
Less : Personal Allowance (12,570) - -

Taxable Income 42,430 - 6,000

Tax Computation
Non Savings Income : 37700 @ 20% Basic Rate 7,540
Non Savings Income : 4730 @ 40% Higher Rate 1,892

Dividend Income : 1000 @ 0% DNRB -

Dividend Income : 5000 @ 33.75% Higher Rate 1,688

Total Tax 11,120

Less : PAYE Credit (9,432)

Tax Payable 1,688

Total
55,000
6,000
61,000
(12,570)

48,430 Higher Rate Tax Payer

Total Non Savings Income = 42430

37700 out of this is taxed in Basic Rate Band
Basic Rate Band is fully used up
How much of non savings income is untaxed at this point
42430 ( - ) 37700 = 4730
4730 of non savings will be taxed in higher rate band
Question

For the tax year 2022 / 23, Kei had the following income

Property Income 40,000

Bank Interest 2,000
Dividend 10,500

Calculate tax liability

Solution

Non Savings Savings Dividend

Particulars
income Income Income

Property Income 40,000

Bank Interest 2,000
Dividend 10,500
Total Income 40,000 2,000 10,500
Less : Personal Allowance (12,570)

Taxable Income 27,430 2,000 10,500

Income Tax Computation

Non Savings Income : 27430 @ 20% Basic Rate 5,486

Savings Income : 500 @ ZERO % SNRB -
Savings Income : 1500 @ 20% Basic Rate 300
Dividend Income : 1000 @ ZERO % DNRB -
Dividend Income : 7270 @ 8.75% Basic Rate 636
Dividend Income : 2230 @ 33.75% Higher Rate 753

Total Tax 7,175

Total

40,000
2,000
10,500
52,500
(12,570)

39,930 Higher Rate Tax Payer

Basic Rate Band 0 - 37700

After taxing Non Savings, Savings and 2000 of Dividend
Unused amount in Basic Rate Band is 37700 ( - ) 27430 ( - ) 2000 ( - ) 1000
Unused amount = 7270

Total Dividend = 10500

Dividend covered under Nil Rate Band = 1000
Untaxed Dividend = 9500
Unused amount in basic rate band = 7270
So, out of untaxed 9500; 7270 will get taxed in Basic Rate Band

Amount of dividend taxed in Higher Rate Band = 10500 ( - ) 1000 DNRB ( - ) 7270 in Basic = 22
000 ( - ) 1000

000 DNRB ( - ) 7270 in Basic = 2230

Question

Francesco has an annual salary of 130000 GBP and made gross personal pension contribution
in the tax year 2023 / 24 of 19000

Calculate adjusted PA

Solution

Calculation of Adjusted Net Income [ ANI ]

Net Income 130,000

less : Gross Personal Pension Contribution (19,000)

Adjusted Net Income 111,000

Reduction of PA = 50% of [ ANI - 100000 ] 5,500

Original Personal Allowance 12,570

Less : Reduction in PA (5,500)
Adjusted PA 7,070
Question

Salman has the following income for the tax year 2023 / 24

Pension Income 7,570

Savings 5,000
Dividend 13,000

Calculate tax liability

Solution

Usually, the order of adjusting PA is "Non Savings - Savings - Dividend"

Option I - Adjust PA against Non Savings first, then against savings

Particulars Non Savings Savings Dividend

Pension Income 7,570
Savings 5,000
Dividend 13,000
Total 7,570 5,000 13,000
Less : Personal Allowance (7,570) (5,000) -

Taxable Income - - 13,000

Tax Calculation
Dividend : 1000 @ 0% -
Dividend : 12000 @ 8.75% 1,050

Tax Liability 1,050

Option II - Adjust PA against Non Savings first, then against Dividend

Particulars Non Savings Savings Dividend

Pension Income 7,570
Savings 5,000
Dividend 13,000
Total 7,570 5,000 13,000
Less : Personal Allowance (7,570) - (5,000)

Taxable Income - 5,000 8,000

Tax Calculation

Savings Income : 5000 @ 0% Starting Rate Band -

Dividend Income : 1000 @ 0% DNRB -
Dividend Income : 7000 @ 8.75% Basic Rate 613

** General Rule
- Where PA reduces Non savings Income to Zero and there is still unused PA, adjust it against
Dividend Income before adjusting against Savings Income
- This is applicable only if "Savings Income" is lesser than "Dividend Income"
- Once Non savings is ZERO, then "Starting Rate Band" can apply and you can get as much as
5000 of savings income taxed at ZERO %

** IMPORTANT
- You are not expected to show both options in the exam
- If PA reduces Non savings income to ZERO and there is still some PA left to be used, then your
order has to be "Non Savings - Dividend - Savings"

Additional scenario - Not a part of above question [ please do not mix up the two ]

Non savings 7570

Savings 14000
Dividend 13000

Option I - Use against Non Savings first, then against Savings

Particulars Non Savings Savings Dividend

Pension Income 7,570
Savings 14,000
Dividend 13,000
Total 7,570 14,000 13,000
Less : Personal Allowance (7,570) (5,000) -

Taxable Income - 9,000 13,000

Tax Calculation

Savings Income : 5000 @ ZERO Starting -

Savings Income : 1000 @ ZERO SNRB -
Savings Income : 3000 @ 20% Basic 600

Dividend Income : 1000 @ ZERO DNRB -

Dividend Income : 12000 @ 8.75% Basic 1,050

Total 1,650
Option II - Use against Non Savings first, then against Dividend

Particulars Non Savings Savings Dividend

Pension Income 7,570
Savings 14,000
Dividend 13,000
Total 7,570 14,000 13,000
Less : Personal Allowance (7,570) - (5,000)

Taxable Income - 14,000 8,000

Tax Calculation

Savings Income : 5000 @ ZERO Starting -

Savings Income : 1000 @ ZERO SNRB -
Savings Income : 8000 @ 20% Basic 1,600

Dividend Income : 1000 @ ZERO DNRB -

Dividend Income : 7000 @ 8.75% Basic 613

Total 2,213
 Total
7,570
5,000
13,000
25,570
(12,570)

13,000

Total
7,570
5,000
13,000
25,570
(12,570)

13,000
Is Non Savings Income < 5000 ?
Yes
So, Starting Rate Band will apply

Does Savings Income fall within first 5000 of taxable income ?

 Yes
Full Savings Income [ 5000 ] falls within first 5000 of taxable income
So, tax rate is ZERO

PA, adjust it against

u can get as much as

eft to be used, then your

up the two ]

Total
7,570
14,000
13,000
34,570
(12,570)

22,000
 Total
7,570
14,000
13,000
34,570
(12,570)

22,000
xable income ?
000 of taxable income
Question

Ana has the following income for the tax year 2022 / 23

Employment Income 6,800

Savings 4,200
Dividend 12,000

Calculate tax liability

Solution
Jointly owned assets

- Generally, income generated from assets owned jointly will be split 50:50 regardless of the
actual percentage ownership.

- Where jointly owned assets are held other than in a 50:50 ratio, an election can be made to HMRC
for the income to be taxed on the individual partners according to their actual ownership, with the
exception of jointly held bank accounts which are always split 50:50

- Where the jointly owned asset is shares in a close company, income is automatically taxed on the
individual partners according to their actual ownership.
egardless of the

can be made to HMRC

ownership, with the

omatically taxed on the

Marriage Allowance

- This is transfer of Personal Allowance from one spouse to other if one spouse has unused PA

If one spouse elects to go for transfer of PA

- a fixed amount is reduced from PA of transferor
- this amount reduced is 1260 regardless of how much was unused

For recipient spouse

- Recipient spouse's PA is not increased
- Reduce the tax liability by 1260 * 20% = 252

To be effective for the tax year 2022/23, the election can be made:

In Advance
- by 5 April 2023
- the election will remain in force for future tax years, unless
- - - the election is withdrawn, or
- - - the conditions for relief are no longer met

Notes
- Marriage allowance does not create a refund for transferee spouse
- It can only reduce the tax to ZERO
- For Marriage allowance to apply, both have to be basic rate tax payers
se has unused PA
Particulars Case I Case II
Total PA available 12,570 12,570
PA used 10,000 11,570
Unused PA 2,570 1,000

Amount that can be transferred to other spouse 1,260 1,260

PA available with Transferor spouse 11,310 11,310

** You cannot decide how much to transfer

*** If you decide to transfer, then only 1260 can be transferred
**** So, in all cases, the transferor spouse will have only 11,310 of PA left

In Arrears
- by 5 Apr 2027 (i.e. within four years of the end of the tax year)
- in this case the election will only apply to the tax year 2022/23 in isolation.
Taxation of children
- Income of a child is assessable to income tax.

- The child has a separate income tax computation.

- The child also has full entitlement to a PA, even in the year of birth.

- If required, returns and claims are completed on behalf of the child by a parent or guardian.

- Where the child has received taxed income, a repayment of tax will probably arise.
*** Taxed Income means income received after deducting tax at source

- Income derived from a source set up by a parent (a parental disposition) is: assessed on the parent, not the chil
• the gross income received in the tax year is £100 or less, and
• the child is under 18 (and unmarried).

- Where a child under the age of 18 (and unmarried) has investment income that is derived from capital provide
• the income is treated as belonging to the parent (if the parent is still alive), rather than the child

- The capital could be provided by:

• setting up a formal trust or settlement, or
• a gift of money (e.g. opening a bank account in the child's name ) or shares

- if the gross income does not exceed £100 in the tax year, then it is not taxed on the parent and is taxed as the c
ent or guardian.

assessed on the parent, not the child unless

hat is derived from capital provided by a parent:

e), rather than the child

on the parent and is taxed as the child's income.

Question

Aljaz and Tala are married. Aljaz is employed and earns a salary of £35,070 per annum, Tala spends
most of her time looking after their two children but works on a Saturday, earning an annual salary of
£6,000. They do not have any other income.
Tala makes an election to transfer the marriage allowance to Aljaz.

Calculate Aljaz and Tala's income tax liabilities for the tax year 2022/23.

Solution

Taxation of Tala - Transferor Spouse

Non Savings Income 6,000

Less : Personal Allowance (6,000)

Taxable Income -

No need to reduce her PA

PA available was 12570 and 6000 was used
1260 will be transferred to Aljaz

Although her unused PA was 6570 [ 12570 - 6000 ]

she could transfer only 1260 to her spouse
er annum, Tala spends
ing an annual salary of

Taxation of Aljaz - Transferee Spouse

Non Savings Income 35,070

Less : Personal Allowance (12,570)

Taxable Income 22,500

Non Savings : 22500 @ 20% : Basic Rate 4,500

Less : Marriage allowance (252)

Tax Payable 4,248

We did not increase Aljaz's PA by 1260

We reduced his tax liability by 1260 * 20% = 252