Income Tax

Income Tax

GCSE(F),

Income Tax is a tax on money being received by an individual. The tax is raised by government to pay for centrally-provided services, such as health, education, defence and welfare.

In the UK, you are allowed to earn a certain amount of money before paying tax: this is known as a personal allowance. Above this amount, an individual pays tax at the basic rate (currently 20%): Note that this is only applied to the amount that is above the personal allowance. There are higher rates of tax for higher earners.

Examples

1. Emily earns £1345 per month. How much will she pay in income tax each month? Assume that her personal allowance is £10,000 (over a year), that she pays tax at 20%, and that she earns the same each month.

Answer: £102.33 per month

£1345 per month = £16140 per year.

She pays tax on 16140 - 10000 = £6140

Tax at 20% = 6140 x 0.2 = £1228 over the year

Change back to monthly figures: 1228 ÷ 12 = 102.33

2. What percentage of her monthly income is Emily, above, actually paying in tax?

Answer: 7.6%

She is paying `frac(102.33)(1345)` x 100 = 7.6%.