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The calculation of tax on the taxable income must be completed in a particular sequence to ensure that the correct result is obtained. The basic computation showed a summary as follows:
Tax @ 10%, 20% etc n
Less rate restricted relief (n)
----
Tax borne n
Less tax deducted at source (n)
----
Tax due/(Tax refund) n
==
When this is broken down into detail it contains the following information:
Tax @ 10%, 20% etc n
Less rate restricted relief (n)
notional tax (n)
relief on qualifying distributions (n)
relief paid on grant of option (n)
----
Tax borne n <- cannot be negative
Plus tax due on gift aid n
Less non-payable tax credits (n)
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Income tax after tax credits n <- cannot be negative
Plus class 4 NIC n
unpaid tax in this year's code n
Less tax deducted at source (n)
unpaid tax in next year's code (n)
Plus capital gains tax n
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Tax due/(Tax refund) n
==
The key point to note is that there are two places in the computation where the total cannot go negative. This means that some reliefs or tax credits may be lost.