Example 25

Fernando has earnings from employment of £7,000 and savings income of £4,000. Fernando's personal allowance is £6,035 because he is under 65. Fernando's taxable income is £4,965. The calculation below shows how this is worked out.

Total income £11,000
Less personal allowance £6,035
Taxable income £4,965

Fernando's personal allowance is all used against his earnings of £7,000 so only £965 (£7,000 - £6,035) is taxable. The rest of the starting rate limit for savings (£2320 - £965 = £1355) can be used against savings income. The calculation below shows how this is worked out. Fernando's earnings are taxable before his savings income.

Earnings £965 x 20 per cent = £193
Savings £1355 x 10 per cent = £135.50
Savings £2,645 (£4000 - 1355) x 20 per cent = £529
Total tax = £857.50

Fernando's employer has deducted £113 income tax from his earnings through Pay As You Earn. Fernando's bank will have taken tax off all of his interest at 20 per cent so they will have taken off £800 (£4,000 x 20 per cent = £800). So Fernando has paid a total of £913 tax at source (£113 + £800). But Fernando is only due to pay £857.50 tax. This means he can claim a repayment of tax from HM Revenue & Customs of £55.50 (£913 - £857.50).