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 £15000 Mark £36000 Charlotte £38700

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\,–\,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 – 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 – 10\,000 = \pounds28\,700

Tax due  = 20\%\;of\;28\,700 = \pounds5\,740

Tax due each month  = 5740 \div 12 = \pounds478.33