Income
Sources of income include wages/salary, interest from savings accounts and benefits. This section will concentrate on wages, salaries and the deductions that are made from this income.
Income Tax
Every individual has a tax allowance. This allowance is the amount of income you are allowed to earn before you are due to pay tax. Any income over this amount is taxed. For example, if you earn \(\pounds900\) more than the allowance you only pay tax on the \(\pounds900\). The tax rate is usually given as a percentage.
Example
Lewis earns \(\pounds15\,300\) in a year. His tax allowance is \(\pounds10\,000\).
How much tax is he due to pay if the tax rate is \(20\%\)?
Answer
Taxable pay \(= 15\,300\,鈥揬,10\,000 = \pounds5\,300\)
Tax due \( = 20\%\,of\,5\,300 = \pounds1\,060\)
Now try these questions:
Question
Mark earns \(\pounds36\,000\) in a year. His tax allowance is \(\pounds10\,000\). How much tax is he due to pay if the tax rate is \(20\%\)?
Taxable pay\( = 36\,000 鈥 10\,000 = \pounds26\,000\)
Tax due \(=20\%\) of \(26\,000\) \(=\pounds5\,200\)
Question
Charlotte earns \(\pounds38\,700\) in a year. Her tax allowance is \(\pounds10\,000\). How much tax is she due to pay each month if the tax rate is \(20\%\)?
Taxable pay\( = 38\,700 鈥 10\,000 = \pounds28\,700\)
Tax due\( = 20\%\;of\;28\,700 = \pounds5\,740\)
Tax due each month\( = 5740 \div 12 = \pounds478.33\)