Nadia: an employee's income tax with a company car and a let flat: Section C practice

Nadia: an employee's income tax with a company car and a let flatSection C · Syllabus B1, B4(f), B5, B7(b), (c) · 15 marks

Nadia is employed by Fairley Ltd as its sales director. She also lets out a flat she owns, and she has savings and shares. Her income and outgoings for the tax year 2025-26 are set out below.

Note 1: Nadia's salary for 2025-26 is £91,500, from which Fairley Ltd deducted PAYE of £27,000. Note 2: From 6 August 2025 Fairley Ltd provided Nadia with a petrol car with a list price of £38,700 and CO2 emissions of 132 grams per kilometre, which she uses privately. Nadia paid Fairley Ltd £100 a month for the private use of the car from 6 August 2025. Fairley Ltd paid for all of the car's fuel, including fuel for Nadia's private journeys, and Nadia made no payment for it. She had no company car before 6 August 2025. Note 3: Nadia's flat in Elm Road was let throughout 2025-26. The rents receivable were £13,200, and the allowable expenses, other than finance costs, were £2,450. She paid mortgage interest of £3,600 on the loan she used to buy the flat. She uses the accruals basis. Note 4: In 2025-26 Nadia received bank interest of £1,900 and dividends of £4,200 from quoted companies. Note 5: In 2025-26 Nadia paid £6,400 into a personal pension scheme. This is the amount she actually paid. She made no gift aid donations and has no other income.

(a) Calculate Nadia's employment income for the tax year 2025-26. [4]

(b) Calculate Nadia's property income for the tax year 2025-26. [1]

(d) Calculate Nadia's taxable income for the tax year 2025-26. [2]

(e) Calculate Nadia's income tax liability for the tax year 2025-26. [3]

(f) Calculate Nadia's income tax payable for the tax year 2025-26. [1]

(g) Explain why Nadia is entitled to only part of the personal allowance for the tax year 2025-26, and how her personal pension contribution affects it. [2]

0 words · a sentence or two

		Normal rates	Dividend rates
Basic rate	£1 – £37,700	20%	8·75%
Higher rate	£37,701 – £125,140	40%	33·75%
Additional rate	£125,141 and over	45%	39·35%
Savings income nil rate band – Basic rate taxpayers			£1,000
Savings income nil rate band – Higher rate taxpayers			£500
Dividend nil rate band			£500

	£
Personal allowance	12,570
Transferable amount	1,260
Income limit	100,000

Days in UK	Previously resident	Not previously resident
Less than 16	Automatically not resident	Automatically not resident
16 to 45	Resident if 4 UK ties (or more)	Automatically not resident
46 to 90	Resident if 3 UK ties (or more)	Resident if 4 UK ties
91 to 120	Resident if 2 UK ties (or more)	Resident if 3 UK ties (or more)
121 to 182	Resident if 1 UK tie (or more)	Resident if 2 UK ties (or more)
183 or more	Automatically resident	Automatically resident

The relevant base level of CO2 emissions is 55 grams per kilometre.
The percentage rates applying to petrol cars (and diesel cars meeting the RDE2 standard) with CO2 emissions up to this level are:
51 grams to 54 grams per kilometre	16%
55 grams per kilometre	17%
The percentage for electric cars with zero CO2 emissions is 3%.
For hybrid-electric cars with CO2 emissions between 1 and 50 grams per kilometre, the electric range of the car is relevant:
Electric range
130 miles or more	3%
70 to 129 miles	6%
40 to 69 miles	9%
30 to 39 miles	13%
Less than 30 miles	15%

Annual allowance – 2022–23	£40,000
– 2023–24 to 2025–26	£60,000
Minimum allowance	£10,000
Income limit	£260,000

Plant and machinery
Main pool	18%
Special rate pool	6%
Cars
New cars with zero CO2 emissions	100%
Second-hand cars with zero CO2 emissions	18%
CO2 emissions between 1 and 50 grams per kilometre	18%
CO2 emissions over 50 grams per kilometre	6%
Annual investment allowance
Rate of allowance	100%
Expenditure limit	£1,000,000
Enhanced capital allowances for companies
Main pool first year allowance	100%
Special rate pool first year allowance	50%
Structures and buildings allowance
Straight-line allowance	3%

Financial year	2023	2024	2025
Small profits rate	19%	19%	19%
Main rate	25%	25%	25%
Lower limit	£50,000	£50,000	£50,000
Upper limit	£250,000	£250,000	£250,000
Standard fraction	3/200	3/200	3/200

Standard rate	20%
Registration limit	£90,000
Deregistration limit	£88,000

Days late	Penalty
Up to 15 days	None
16 to 30 days	3%
More than 30 days	6% plus a daily penalty at an annual rate of 10%

Nil rate band	£325,000
Residence nil rate band	£175,000
Rate of tax on excess – Lifetime rate	20%
– Death rate	40%

Years before death	Percentage reduction
More than 3 but less than 4 years	20%
More than 4 but less than 5 years	40%
More than 5 but less than 6 years	60%
More than 6 but less than 7 years	80%

Lifetime limit – business asset disposal relief	£1,000,000
– investors’ relief	£1,000,000
Rate of tax	14%

Class 1 Employee	£1 – £12,570 per year	Nil
	£12,571 – £50,270 per year	8%
	£50,271 and above per year	2%
Class 1 Employer	£1 – £5,000 per year	Nil
	£5,001 and above per year	15%
	Employment allowance	£10,500
Class 1A		15%
Class 4	£1 – £12,570 per year	Nil
	£12,571 – £50,270 per year	6%
	£50,271 and above per year	2%

Official rate of interest	3·75%
Rate of interest on underpaid tax	8·50%
Rate of interest on overpaid tax	3·50%

Taxpayer behaviour	Maximum penalty	Minimum penalty – unprompted disclosure	Minimum penalty – prompted disclosure
Deliberate and concealed	100%	30%	50%
Deliberate but not concealed	70%	20%	35%
Careless	30%	0%	15%

Up to 10,000 miles	45p
Over 10,000 miles	25p