Unit 2 - Personal Finance : Income Tax

Question 1

Personal allowance

Answer 1

Annual amount of tax-free income
- £12570

Question 2

How to find the amount of tax paid per year

Answer 2

First take the annual salary and minus basic allowance (£12 570) to give you the taxable income. If the taxable income is more than £37 700, subtract £37 700 from it to find the amount in the next band (do for however many bounds necessary). Multiply the £ by their respected % for their band (20% for basic, 40% for higher, etc). Find the total tax paid and put it over the annual salary x 100 to find the % of salary paid as tax yearly.

e.g. Donald is an accountant with an annual salary of £82,000. How much tax does he pay per year?

Annual Salary £82 000
Basic Allowance £12 570
Taxable Income £69 430

Basic Tax £37 700 x 20% = £7 540
Higher Tax £31 730 x 40% = £12 692

Total tax paid = £20 232

Percentage of salary = (20 232 / 82 000) x 100 = 24.67%