Tx notes fa22 Final

June 2023 to March 2024 exams
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Illustration 3
Villa has a trading profit assessment for the 2022/23 tax year of £350,000 and made a contribution 
into a personal pension scheme during this year of £70,000 (gross). Villa joined the pension scheme 
in 2021/22 in which year he made gross personal pension contributions of £10,000 and had net 
income of £90,000 . 
Compute the annual allowance charge that will arise in 2022/23 and prepare an Income tax 
computation for Villa showing his Income Tax liability for the tax year. 
For 2022/23 Villa has relevant earnings of £350,000 so the gross contribution of £70,000 will all 
attract tax relief, but his AA for 2022/23 will be reduced to £4,000 as his adjusted income exceeds 
£312,000. 
As Villa was not a member of a pension scheme until 2021/22 he will have no unused AA brought 
forward from earlier years. However, he have unused AA brought forward from 2021/22 of £30,000 
as his AA limit was the full £40,000 of which he had used only £10,000. He will therefore have an AA 
charge of £36,000 (70,000 – (30,000 + 4,000). 
As Villa has contributed to a personal pension scheme not an occupational scheme his basic and 
higher rate band limits will be increased by the gross contribution of £70,000, to £107,700 and 
£220,000 respectively. As personal pension scheme contributions are made net of basic rate tax 
relief, Villa will actually have made a payment of £56,000 (70,000 x 80%) into the pension scheme.
Villa’s Income Tax computation for 2022/23 will therefore be as follows:
Note 1: Villa’s Adjusted Net Income for purposes of computing his personal allowance is £280,000 
(350,000 – 70,000). As this exceeds £125,140, his personal allowance will be reduced to zero.
As Villa is an additional rate taxpayer the AA charge is taxed at his marginal rate of 45%: top-sliced.
£
Trading Profit
350,000
Net Income
350,000
Less: PA (note 1)
(NIL)
Taxable Income
350,000
Basic rate
107,700 @ 20%
=
21,540
Higher rate
112,300 @ 40%
=
44,920
Additional rate
130,000 @45%
=
58,500
AA Charge
36,000 @45% 
16,200
Income Tax Liability
141,160

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