Being aware of your financial situation can take many forms - from working out wages, and any tax you need to pay, to choosing the best mobile phone contract.
When workers earn more than a certain amount (called the tax threshold), they have to pay income tax.
For example, during the tax year from April \({2014}\) to April \({2015}\), an individual would have to pay income tax on any income over \(\pounds{10,000}\).
The first \(\pounds{10,000}\) is called a tax allowance, and a person is usually allowed to earn this amount without having to pay any income tax on it.
Of the income that is to be taxed, the first \(\pounds{32,000}\) (approximately) is taxed at \({20}\%\), and any income over this amount is taxed at a higher rate.
Helen has an annual salary of \(\pounds{36,000}\) for the tax year \(2014 - 2015\).
She has a tax allowance of \(\pounds{10,000}\).
Calculate how much income tax she will have to pay during the year.
Helen has a tax allowance of \(\pounds{10,000}\), so she will only have to pay income tax on \(\pounds{26,000}\).
Her income is under \(\pounds{32,000}\) therefore income tax is charged at the rate of \({20}\%\).
\({20}\%\) of \(\pounds{26,000}\) \(={0.2}\times{26,000}\)
\[=\pounds{5,200}\]
Helen will have to pay \(\pounds{5,200}\) as income tax.
This is an amount taken from wages and salaries to contribute towards benefits such as your state pension.
For the year \(2014 - 2015\), the rate of National Insurance contributions is \({12}\%\) on earnings between \(\pounds{153}\) and \(\pounds{805}\) a week, or between \(\pounds{7,956}\) and \(\pounds{41,865}\) per year. If you earn below \(\pounds{153}\) a week, you do not have to make any National Insurance contributions. If you earn more than \(\pounds{805}\) a week, then you also have to pay \({2}\%\) on any further earnings.
Dayna works as an actress. Her weekly wage is \(\pounds{1,200}\).
How much National Insurance does Dayna have to pay each week?
In summary:
\(\pounds{153}\) at \({0}\%\)
\(\pounds{805}-\pounds{153}=\pounds{652}\) at \({12}\%\)
\(\pounds{1,200}-\pounds{805}=\pounds{395}\) at \({2}\%\)
Total National Insurance paid \(={12}\%\) of \(\pounds{652}\) \(+~{2}\%\) of \(\pounds{395}\)
\[=({0.12}\times{652})+({0.02}\times{395})\]
\[={78.24}+{7.90}\]
\(=\pounds{86.14}\) per week