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Nuffield Free-Standing Mathematics Activity. Pay as you earn. In this activity you will work out how much income tax typical workers pay. Income tax 2012 - 2013. Income tax is paid on ‘taxable income’ above a certain level. How to calculate income tax. - PowerPoint PPT Presentation
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© Nuffield Foundation 2011
Nuffield Free-Standing Mathematics Activity
Pay as you earn
In this activity you will work out how much income tax typical workers pay.
Income tax 2012 - 2013Income tax is paid on ‘taxable income’ above a certain level.
Taxable income = annual income – personal tax allowance
Basic Rate:20% on the first £34 370 of taxable income
How to calculate income tax
Higher Rate:40% on taxable income between £34 370 and £150 000
Additional Rate50% on any taxable income above £150 000
Example Katie earns £400 per week. Her personal tax allowance is £8105.
Taxable income
To calculate the income tax Katie will pay:
Katie’s annual income
Income Tax
Think aboutWhat needs to be done first?
Think aboutWhat methods could you use to work out 20%?
= £400 52
= £20 800
= 20% of £12 695
= £20 800 – £8105
= £12 695
= £2539 per annum
Example Liam earns £58 600 per annum. His personal tax allowance is £8105.
Taxable income
To calculate the income tax Liam will pay:
Tax at basic rate
Think aboutWhat needs to be done first?
Think aboutWhat income tax will Liam pay each month?
= 20% of £34 370
= £58 600 – £8105
= £50 495
= £6874
Tax at higher rate = 40% of (£50 495 – £34 370)= 40% of £16 125
= £6450
Total income tax = £6874 + £6450
= £13 324 per annum
Question 1 Sam earns £2275 per month. His personal tax allowance is £8105.
Taxable income
Income tax at the basic rate = 20% of £19 195
= £27 300 – £8105
= £19 195
= £3839 per annum
Sam’s annual income = £2275 12
= £27 300
Question 2 Meera earns £79 800 per annum. His personal tax allowance is £8105.
Taxable income
Income tax at basic rate = 20% of £34 370
= £79 800 – £8105
= £71 695
= £6874
Income tax at higher rate= 40% of (£71 695 – £34 370)= 40% of £37 325
= £14 930Total income tax = £6874 + £14 930
= £21 804 per annum
• Does a person who earns £30 000 per year pay twice as much tax as someone who earns £15 000 per year?
• Sketch a graph of income tax against taxable income.
• How much do you need to earn before you become a higher rate tax payer?
• Sketch a graph of income tax against annual earningsfor earnings up to £100 000.
At the end of the activity
Pay as you earn
Taxable income
Income tax on £30 000
Tax at basic rate
Think aboutWhat do you need to assume?
= 20% of £21 895
= £30 000 – £8105
= £21 895
= £4379
Taxable income
Income tax on £15 000
Tax at basic rate = 20% of £6895
= £15 000 – £8105
= £6895
= £1379
Graph of income tax against taxable income
Think aboutis income tax proportional to taxable income?
£34 370
£6874
£150 000
£53 126
£0 Taxable income
Income tax
Graph of income tax against annual earnings
Think aboutHow does the steepness of each line segment relate to the tax rates?
£8105
£6874
£100 000 £0 Annual earnings
Income tax
£29 884
£42 475