ACCA TX Income Tax Computation Notes: Personal Allowance, Rates and Worked Example

An ACCA income tax computation is a step by step calculation that turns a person’s total income for a tax year into the income tax they owe. You add up all income, deduct the personal allowance, then tax each slice of income at the correct rate, with non-savings income taxed first, savings income second and dividend income last. The ACCA TX-UK exam tests this computation in Section C, usually as a 15 mark question. This note uses the 2025-26 tax year, which ACCA examines under Finance Act 2025 for sittings from 1 June 2026 to 31 March 2027. For the full ACCA syllabus, worked examples and revision notes, visit the ACCA notes hub.

ACCA Income Tax Computation: The Method in Five Steps

Start with total income, deduct the personal allowance of 12,570 pounds, then tax non-savings income at 20, 40 or 45 percent, savings income next with the starting rate and personal savings allowance applied, and dividends last at 8.75, 33.75 or 39.35 percent after the 500 pound dividend allowance.

Use these five steps in every ACCA income tax computation, in order. The examiner awards marks for a clear layout even when one figure is wrong.

1. Add up total income. Include employment income, trading profit, property income, savings interest and dividends. Exclude exempt income, such as ISA interest.
2. Work out the personal allowance. The standard allowance is 12,570 pounds. It falls by 1 pound for every 2 pounds of adjusted net income above 100,000 pounds, and reaches zero at 125,140 pounds.
3. Tax non-savings income first. Deduct the personal allowance from non-savings income first. The basic rate band is the first 37,700 pounds of taxable income at 20 percent, the higher rate applies up to 125,140 pounds at 40 percent, and income above that is taxed at 45 percent.
4. Tax savings income second. Apply the starting rate of 0 percent on up to 5,000 pounds where non-savings income is low, then the personal savings allowance of 1,000 pounds for basic rate taxpayers or 500 pounds for higher rate taxpayers, and nil for additional rate taxpayers.
5. Tax dividend income last. Deduct the 500 pound dividend allowance, then apply dividend rates of 8.75 percent in the basic rate band, 33.75 percent in the higher rate band and 39.35 percent in the additional rate band.

The 2025-26 Rates and Allowances to Memorize

ACCA examines Finance Act 2025 and the 2025-26 tax year for sittings from 1 June 2026 to 31 March 2027. These figures apply in England, Wales and Northern Ireland; Scottish rates are covered later in this note.

Item	2025-26 figure
Personal allowance	12,570 pounds
Taper starts	Adjusted net income above 100,000 pounds
Allowance lost in full	Adjusted net income of 125,140 pounds
Basic rate band	First 37,700 pounds of taxable income, 20 percent
Higher rate threshold	Total income of 50,270 pounds
Additional rate threshold	Total income above 125,140 pounds, 45 percent
Starting rate for savings	0 percent on up to 5,000 pounds
Personal savings allowance	1,000 pounds basic, 500 pounds higher, nil additional
Dividend allowance	500 pounds
Dividend rates	8.75 percent, 33.75 percent, 39.35 percent

Two numbers cause the most errors. The basic rate band of 37,700 pounds is measured on taxable income after the personal allowance, while the higher rate threshold of 50,270 pounds is measured on total income before it. The additional rate threshold of 125,140 pounds is also the figure at which the personal allowance reaches zero.

How Savings and Dividend Income Fit Into the ACCA Income Tax Computation

The stacking order is the heart of the ACCA income tax computation. Non-savings income sits at the bottom and uses the personal allowance first, savings income sits in the middle, and dividend income sits at the top. This order decides which rate applies to each slice.

The starting rate for savings is 0 percent on the first 5,000 pounds of savings income, but only where non-savings income after the personal allowance is below 5,000 pounds. In practice, most employed candidates in exam questions earn too much for the starting rate to apply, and the examiner often includes it as a trap: a candidate with salary of 40,000 pounds gets no starting rate at all. The personal savings allowance then shelters 1,000 pounds of interest for basic rate taxpayers and 500 pounds for higher rate taxpayers, and additional rate taxpayers get none.

Dividends are taxed last, after the 500 pound dividend allowance, at 8.75 percent in the basic rate band, 33.75 percent in the higher rate band and 39.35 percent in the additional rate band. A common error is to tax dividends at the ordinary rates of 20, 40 and 45 percent.

ACCA Income Tax Computation Worked Example 1: Salary, Savings and Dividends

Maria has salary of 42,000 pounds, savings interest of 1,600 pounds and dividends of 900 pounds in 2025-26. Her adjusted net income is below 100,000 pounds, so she keeps the full personal allowance of 12,570 pounds.

Step	Calculation	Amount (pounds)
Total income	42,000 + 1,600 + 900	44,500
Less personal allowance	Full allowance, income below 100,000	(12,570)
Taxable non-savings income	42,000 – 12,570	29,430
Tax at 20 percent	29,430 x 20%	5,886
Savings income after personal savings allowance	1,600 – 1,000	600
Tax at 20 percent	600 x 20%	120
Dividend income after dividend allowance	900 – 500	400
Tax at 8.75 percent	400 x 8.75%	35
Total income tax liability	5,886 + 120 + 35	6,041

Check the result. Total taxable income after the personal allowance is 29,430 + 600 + 400 = 30,430 pounds, inside the basic rate band of 37,700 pounds, so every slice is taxed at the basic rate or the basic dividend rate. Maria receives no starting rate for savings because her non-savings income after the allowance, 29,430 pounds, is far above the 5,000 pound band. Her total income tax liability for 2025-26 is 6,041 pounds.

ACCA Income Tax Computation Worked Example 2: The Personal Allowance Taper

James has salary of 118,000 pounds and no other income in 2025-26. His adjusted net income is above the 100,000 pound taper threshold, so he loses part of his personal allowance.

Step	Calculation	Amount (pounds)
Adjusted net income	Salary	118,000
Excess over 100,000 pounds	118,000 – 100,000	18,000
Personal allowance lost	18,000 / 2	9,000
Reduced personal allowance	12,570 – 9,000	3,570
Taxable income	118,000 – 3,570	114,430
Basic rate tax	37,700 x 20%	7,540
Higher rate tax	(114,430 – 37,700) x 40%	30,692
Total income tax liability	7,540 + 30,692	38,232

James pays 38,232 pounds of income tax. Notice the taper trap: between 100,000 and 125,140 pounds, each extra 2 pounds of income costs 1 pound of personal allowance, so the effective marginal rate in that band is 60 percent. Always calculate the reduced personal allowance before you tax any income.

Scottish Rates and the ACCA Income Tax Computation

Scotland sets its own income tax rates and bands for non-savings, non-dividend income. Savings and dividend income are still taxed at UK-wide rates, and the personal allowance of 12,570 pounds is the same across the UK. For 2025-26, Scottish taxpayers pay 19 percent starter rate to 15,397 pounds, 20 percent basic rate to 27,491 pounds, 21 percent intermediate rate to 43,662 pounds, 42 percent higher rate to 75,000 pounds, 45 percent advanced rate to 125,140 pounds, and 48 percent top rate above 125,140 pounds. If a question says the taxpayer lives in Scotland, use these bands for employment and trading income, and UK-wide rates for savings and dividends.

ACCA Income Tax Computation Exam Traps

• Taxing all income at one rate. Tax is charged slice by slice; only income inside a band is taxed at that band’s rate.
• Forgetting the taper. Adjusted net income above 100,000 pounds reduces the personal allowance, so work it out first.
• Applying the starting rate to everyone. The 0 percent starting rate only helps when non-savings income after the personal allowance is below 5,000 pounds.
• Mixing up the allowances. The personal savings allowance applies to interest and the dividend allowance to dividends. They are separate, and neither replaces the personal allowance.
• Using the wrong tax year. TX-UK examines Finance Act 2025 and 2025-26 for sittings from 1 June 2026 to 31 March 2027.
• Taxing dividends at 20, 40 or 45 percent. Dividends use 8.75, 33.75 and 39.35 percent, only after the 500 pound dividend allowance.
• Ignoring the stacking order. Non-savings income first, savings income second, dividends last.

One-Page Revision Box: ACCA Income Tax Computation

Revision point	Remember
Order of steps	Total income, allowance, non-savings, savings, dividends
Personal allowance	12,570 pounds; taper 1 pound per 2 pounds above 100,000 pounds; zero at 125,140 pounds
Rate bands	20 percent to 37,700 pounds, 40 percent to 125,140 pounds, 45 percent above
Starting rate for savings	0 percent up to 5,000 pounds, only if non-savings income is low
Personal savings allowance	1,000 pounds basic, 500 pounds higher, nil additional
Dividends	500 pounds allowance, then 8.75, 33.75 and 39.35 percent
Scottish taxpayers	Six bands, 19 to 48 percent, for non-savings income; UK rates for savings and dividends
Exam format	Three hours, 100 marks, 50 percent pass mark; Section C: one 10 mark and two 15 mark questions

ACCA published a TX pass rate of 54 percent for the September 2026 sitting, against 55 percent in June 2026. TX-UK is examined in the December 2026 session on Tuesday 8 December 2026, with results due on 18 January 2027. Practice the full layout until it is automatic: total income, reduced personal allowance, non-savings tax, savings tax, dividend tax, then total. For more ACCA study notes and revision guides, visit the ACCA notes hub.