R03 Income tax and NIC computations: free practice questions

1. Question 1 of 5

   Aisha earns a salary of £48,000 and receives £800 of building society interest in 2026/27. What is her income tax liability?

   Option A: £7,246Option B: £7,086Option C: £9,760Option D: £9,600

   Show answer

   The answer is B: £7,086

   Taxable salary = £48,000 − £12,570 = £35,430 × 20% = £7,086. Total taxable income is within the basic rate band, so the £800 interest falls within her £1,000 savings allowance.

   Why the other options are wrong

   A

   The interest is covered by her £1,000 personal savings allowance.

   C

   The personal allowance of £12,570 is deducted first.

   D

   That taxes the salary without deducting the personal allowance.

2. Question 2 of 5

   Gita earns £25,000 and has residential rental profits of £30,000 before deducting £6,000 of mortgage interest. What is her income tax liability for 2026/27?

   Option A: £8,232Option B: £7,286Option C: £7,032Option D: £9,432

   Show answer

   The answer is A: £8,232

   Total income £55,000; taxable £42,430: £7,540 + £4,730 × 40% = £9,432. Less the finance cost credit of £6,000 × 20% = £1,200. Total £8,232.

   Why the other options are wrong

   B

   Mortgage interest isn't deducted from profits; it gives a 20% tax credit instead.

   C

   The credit is 20% of the interest, not 40%.

   D

   The £1,200 basic rate credit for the interest is deducted.

3. Question 3 of 5

   Ned, born in 1933, is married and has pension income of £30,000 in 2026/27. What is his income tax liability?

   Option A: £3,033Option B: £2,316Option C: £1,146Option D: £3,486

   Show answer

   The answer is B: £2,316

   (£30,000 − £12,570) × 20% = £3,486, less married couple's allowance of £11,700 × 10% = £1,170 (no taper below £39,200). Total £2,316.

   Why the other options are wrong

   A

   The minimum allowance only applies at much higher incomes.

   C

   The married couple's allowance reduces tax by 10% of £11,700, not 20%.

   D

   He's entitled to the married couple's allowance reduction of £1,170.

4. Question 4 of 5

   Interest in possession trustees receive £4,000 of UK dividends and £1,000 of interest in 2026/27, with no expenses. What tax do they pay?

   Option A: £630Option B: £576.25Option C: £2,024Option D: £1,000

   Show answer

   The answer is A: £630

   IIP trustees pay 10.75% on dividends (£430) and 20% on interest (£200): £630. They get no allowances, and the income exceeds the £500 trust allowance.

   Why the other options are wrong

   B

   Trustees get no dividend allowance.

   C

   IIP trustees pay the basic rates, not the discretionary trust rates.

   D

   Dividends are taxed at 10.75% and interest at 20%.

5. Question 5 of 5

   Yuri, self-employed, made a loss of £4,000 last year, which he relieved against other income for income tax. This year's profit is £20,000. What are this year's class 4 NICs?

   Option A: £205.80Option B: £274.40Option C: £1,200.00Option D: £445.80

   Show answer

   The answer is A: £205.80

   For class 4 the loss is carried forward: £20,000 − £4,000 = £16,000. (£16,000 − £12,570) × 6% = £205.80.

   Why the other options are wrong

   B

   The class 4 main rate is 6%, not 8%.

   C

   Class 4 is charged only above £12,570.

   D

   The loss can still be carried forward for class 4.

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