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We consider the scope of income tax and see how to collect together all of an individual's income in a personal tax computation, and we also see which income can be excluded as being exempt from tax. Next we look at the circumstances in which interest paid can be deducted in the income tax computation. Each individual is entitled to a personal allowance, and only if that is exceeded will any tax be due. Older taxpayers are entitled to a higher allowance, the age allowance. We then learn how to work out the tax on the individual's taxable income, and we see how donations to charity under the gift aid scheme can save tax.
An individual aged 75 or over receives a higher age allowance of £9,640 instead of the personal allowance of £6,475. If the individual's adjusted net income exceeds £22,900 the age allowance is reduced by £1 for each £2 by which adjusted net income exceeds £22,900. The age allowance cannot be reduced below the amount of the personal allowance (£6,475). However, if the individual has adjusted net income in excess of £100,000, the personal allowance will be reduced as described above. An individual is entitled to the age allowance, or higher age allowance, provided he attains the age of 65 or 75 respectively before the end of the tax year, or would have had he not died before his birthday.
The VAT Directives still allow for a certain amount of flexibility between member states, eg in setting rates of taxation. There are only limited examples of Directives in the area of Direct Taxes, generally concerned with cross-border dividend and interest payments and corporate reorganisations. However, under the EU treaties, member states are also obliged to permit freedom of movement of workers, freedom of movement of capital and freedom to establish business operations within the EU. These treaty provisions have ‘direct effect’, ie a taxpayer is entitled to claim that a UK tax provision is ineffective because it breaches one or more of the freedoms guaranteed under European Law.