Practice Questions

Question 1

Describe how tax codes are used by employers and employees. (5 marks)

Answer 1

• used on P45 and P60
• 1 tax code per employer
• 1 letter and 4 numbers
• shows how much tax to deduct from earnings
  shows personal allowance set by HMRC

Question 2

What are 4 pieces of information on a P45? (4 marks)

Answer 2

A P45 is used when an employee is leaving an employer (changing jobs)

• tax code and PAYE reference number
• National Insurance number
• leaving date
• earnings in tax year so far
• income tax paid

Question 3

Describe using examples, the sources and frequency of unearned income that might be used when constructing a personal budget. (5 marks)

Answer 3

• one-off payments (inheritance or win on premium bonds)
• benefits - weekly/monthly
• state and private pensions - monthly
• interest on savings - monthly/annually
• financial gifts received on birthdays and holidays

Question 4

Describe why there has been a decline in the use of cheques. (5 marks)

Answer 4

• it takes a couple days for the cheque to go through or ‘clear’
• cheque could bounce if there are insufficient funds
• cheques are not widely accepted
• there are higher costs of processing of cheques than credit cards

Question 5

Describe why Gavin has always banked with HSBC and not changed providers. (5 marks)

Answer 5

• customer loyalty and inertia, Gavin might want to stay because of rewards and good relationship with HSBC who are ‘happy to increase overdraft if needed’
• lack of information or misinformation about changing providers, people think it is difficult and time-consuming
• HSBC is a nationwide bank so it is easy to contact them and find branches