R04 - I think an exam question was incorrect
Kmomia82
Member
Hi all
I sat R04 yesterday, and passed (thank God), but I think one of the questions was incorrect. I'll put it below (to the best of my memory), and would be grateful if you guys could review it and see if I am missing something massively obvious here:
Mr X, a higher rate tax payer, was a member of his company’s occupational pension scheme between September 2015 and August 2017, and has recently left employment and requested a refund of his pension contributions. He has received a net payment of £23,000. How much tax is the scheme administrator liable to pay:
None
Not sure – it was around the £4,000 mark
£4,000
£11,500
However, I make the answer £11,000. My best guess is that there is a typo in the question, so the net amount should read £23,500 instead, but am I missing something here?
Cheers
Comments
Hi Yelsnat
Thanks for responding. Could you please explain your rationale/calculation?
It was my understanding that the first £20k of a refund of premiums was subject to 20% tax, with anything above this figure subject to 50% tax. Which, on that basis, the first £16k of the net payment represents the first £20k gross (with £4k tax levied), and the remaining net amount, of £7k, representing the next £14k gross that was subject to 50% tax (and therefore, a further £7k tax levied). £4k + £7k = £11k.
Would love to understand how you reached £5,500, as it would indicate I am missing something vital here.
Thanks.
Just sat the R04 exam today and the £23,000 was actually GROSS figure.
this means the first £20,000 is taxed at 20% for £4,000 with the remaining £3,000 being taxed at 50% for £1,500.
this means that the amount of tax paid would equal £5,500.
Hope that clears everything up for you!
Alex
Hi Alex
Thanks for that. That would certainly make more sense!
I was so certain I read net! haha. Oh well, I guess that is one question I got wrong!
Nevermind, at least the mystery is solved!
Thank you.
Kate