Tax and National Insurance “I like to pay taxes. With them, I buy civilization.” Oliver Wendell Holmes Jr. “The hardest thing in the world to understand.

Tax and National Insurance

“I like to pay taxes. With them, I buy civilization.”

Oliver Wendell Holmes Jr. “The hardest thing in the world to understand is the income tax.”Albert Einstein"I believe we should all pay our tax bill with a smile.

I tried but they wanted cash."Anonymous

“The invention of the teenager was a mistake.

Once you identify a period of life in which people

get to stay out late but don't have to pay taxes –

naturally, no one wants to live any other way.”

Judith Martin

Tax and National Insurance

Source: www.gov.uk

Tax and National Insurance

Source: www.gov.uk

TYPES OF WORK

How much are these jobs paid?

You have 9 cards of different types of work, and 9 cards of their average salaries.

Try to match the work with the salary.

Childcare services

Air traffic controller

Train driver

Animal care services

Dental practitioner

Plumber

Senior Fire Officer

Bar staffMarketing and sales director

£27,832 £45,489 £7,317

£84,377 £49,684 £11,466

£69,068 £16,158 £53,567

Adapted from data from the Office for National Statistics licensed under the Open Government Licence v.3.0.

TYPES OF WORK AND

THEIR SALARIES

These are the solutions.

Childcare services

£11,466

Air traffic controller

£69,068

Train driver

£45,489

Animal care services

£16,158

Dental practitioner

£53,567

Plumber

£27,832

Senior Fire Officer

£49,684

Bar staff

£7,317

Marketing and sales director

£84,377

Adapted from data from the Office for National Statistics licensed under the Open Government Licence v.3.0.

Which tax bracket?

Cut these headings out, and organise your cards under them.

Pays no tax

Pays 20% tax on earnings above £10,000, up to £41,865

Pays 20% tax on earnings above £10,000, and 40% tax on earnings

above £41,866

Pays45% tax on some earnings

Calculating tax

• Look at the information sheet ‘Income tax allowances and rates’.

• Explain why someone who earns £11,000 per year will have to pay £200 in tax.

• How much a month would that person pay in tax?

• What other deductions are taken from this person’s earnings?

National Insurance

• You may have your National Insurance Card already. It usually arrives in the post before your 16th birthday.

• It is your unique number for life.

• It ensures that your tax and NI contributions are recorded on your name.

Calculating National Insurance contributions

• Look at the information sheet ‘National Insurance contributions’.

• How can we work out if someone earning £11,000 a year will pay National Insurance contributions (NI)? What is the first calculation we could do?

• How much a year will this person pay in NI?

• How much does this work out each month?

• How much in total is deducted each month from this person?

Calculating Tax and National Insurance contributions

How much tax and National Insurance would you pay if you earned £200 each week?

How much tax and National Insurance would you pay if you earned £400 each week?

What percentage of your gross earnings would you pay in tax and National Insurance for each of these wages?

Do you think that is fair?

Calculating Tax and National Insurance contributions

Let’s go to the other extreme:

• The average Premiership footballer is paid £2.3 million per year.

• How much of this should be paid in tax and National Insurance? What proportion of his whole wage is this?

• Note: He will not have a personal allowance at this rate of pay. His threshold would therefore be

o £0 to £31,865: 20% tax rateo £31,865 to £150,000: 40% tax rateo Above £150,000: 45% tax rate

Calculating Tax and National Insurance contributions

• Look at each of the 9 workers in your cards.

• Calculate the tax and National Insurance they should pay.

• Calculate the proportion each person pays in tax and NI from their gross salary.

• Is the tax burden shared fairly or not in your view?

• If you want to explore further, investigate salaries around the thresholds – e.g. the difference between earning £9,900 and £10,100, then £41,800 and £41,900, and again at £100,000 to £120,000.

Further information can be obtained from: https://www.gov.uk/national-minimum-wage

Further advice can be found at The Money Advice Service: https://www.moneyadviceservice.org.uk/en/articles/understanding-your-payslip

An example payslip is explained at: http://www.learndirectqualifications.net/campaigns/worth-learning/managing-money/understanding-your-payslip/

Income tax rates

Earnings* 2014/15

rate

Under your personal allowance (PA) – usually £10,000

No income tax payable

Usually between £10,000 and £41,865

20%

Usually between £41,866 and £150,000

40%

Over £150,000 45%

Income Tax allowances and rates

*Note that some people have a lower personal allowance depending on their personal circumstances. The figures shown apply to most people but not everyone.

Source: HMRC 2014

Income Tax Allowances 2013-14 2014-15

Personal Allowance for people born after 5 April 1948 (1)

£9,440 £10,000

Income limit for Personal Allowance

£100,000

£100,000

Blind Person's Allowance £2,160 £2,230

Source: HMRC 2014

National Insurance contributionsYou pay National Insurance contributions to qualify for certain benefits including the State Pension.

You pay National Insurance if you’re:• 16 or over;• An employee earning above £153 a week;• Self-employed and making a profit over £5,885 a

year (unless you get an exception).

How much you pay if you are employed You pay Class 1 National Insurance contributions. The rates for most people are:• 12% on your weekly earnings between £153 and

£805;• 2% on any weekly earnings over £805.