In a simple tax system, the first GBP 12,500 of annual income is tax-free and the rest is taxed at 20%. How much tax is paid on an income of GBP 30,000?
Answer and explanation
Correct answer: D. GBP 3,500
- Step 1: Taxable income = 30,000 - 12,500 = 17,500. Step 2. Tax = 20% of 17,500 = 3,500 pounds. Answer: GBP 3,500. Why not the others: GBP 6,000 taxes the whole income, including the tax-free amount; GBP 2,500 taxes only the tax-free allowance; GBP 17,500 is the taxable income, not the tax due.
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