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1.6 Tax liability and tax payable
The following standardised terms are used in the requirements of examination questions:
Tax liability
The total income tax liability after deducting any allowances or reliefs, and after adding any basic rate tax retained from charges on income(such as patent royalties)
Tax payable
The tax liability outstanding after deducting credits for any tax already suffered/paid.

Illustration 1 income tax computation-revision

Tony has earnings from his employment of ￡35000 from which PAYE of ￡5190, was deducted.

He owns 2 let properties showing a profit for the year of ￡4000.

His investment income is dividends of ￡3600 and bank interest of ￡800.

Calculate Tony’s tax payable for 2006/07.

Solution ￡
Earned income
Employment income 35000
Savings income
Bank interest ￡800*100/80

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