Teacher Notes

• Homework sheets don’t need to be printed, they are on VLE (sheets are included
on slides 4 and 5 if you do want to print).
• Lots of option for political discussion here:
– Who sets tax rates?
• What’s their life experiences?
• Who do they listen to?
– Where does tax go?
• Your taxes fund nuclear weapons, social security, roads, NHS etc
– Tax in law (you have to pay).
– Different models of taxation (inc reverse taxation or universal basic income, links in notes to
this page)
• Need to be good at percentage multipliers.
• The most common error is mixing up the two ways of looking at the bands (see the
two next slides)
– One is showing the gross incomes at which each tax starts.
– The other is to talk about ‘taxable income’
– It’s important you’re comfortable with both methods, the first is the one we use to teach the
calculations as it’s much easier to visualise, the second is the one that we move towards as we
get closer to the exam as it better matches how the bands are communicated in the exam
preliminary material.
• At the end of the PPt are supporting slides you may want to use to explain
visually how income tax is calculated.
Here the bands are given as the amount of gross
earnings at which band kicks in.

https://www.gov.uk/income-tax-rates
Taxation Watch-Out

Here the bands are given

as amount earned over
the 0% threshold (£11000
in this case)
• Look at this graphic. What is it trying to show?

What would
What is your
you
opinion?
change?
Remember This?
 Taxation

Specification Links:
F6.1 Income Tax, National Insurance,
VAT (Value Added Tax)
 Context

• Calculating how much tax you owe, or will owe, is

a crucial part of business and day-to-day life.
• Understanding where tax goes and why it exists
makes paying it less emotionally painful.
 Learning Point 1
• Taxation is a means by which governments
finance their expenditure by imposing charges on
citizens and corporate entities.
• Taxation isn’t just an economic tool, it’s also a
political tool. Governments use taxation to
change citizens behaviour.
• TASK: Think of 3 different taxes that are designed
to change behaviour.
• A ‘progressive’ tax is one which the rate increases
as the payer’s income increases.
– Give an example of such a tax.
– What is the opposite called? Give an example.
 You’ll
need
Income Tax these
values in
a minute

• Income Tax is payable in bands, the more you

earn the more you pay.

https://www.gov.uk/income-tax-rates
Taxation Watch-Out

• This is from the material

given with an exam.
• What do you think the
common error would be?
 Income Tax
1. You earn £900 per month. How much tax do
you pay?
 900 x 12 = £10800. This is within the 0% band. No
tax due.
2. You earn £1 000 per month. How much tax do
you pay?
 1500 x 12 = £18 000.
 Subtract the 0% tax band.
 18000-12500 = £5500. This is taxable at 20%.
 20% of £5500 is £1100. This is the tax due.
3. You earn £10 000 per month.
 Is the tax due is 10 times the tax due in Q2?
 Income Tax - Practice
Calculate the tax due on the following incomes.
1. £450 per week (a band 2 nurse).
2. £4800 per month (Police Chief Inspector)
3. £160 000 per annum (Top 1% of earners)
 Income Tax – Practice Solutions
Calculate the tax due on the following incomes.
1. £450 per week (a band 2 nurse).
£23400 pa.
Tax Free
£12500 tax free.
Basic rate
£23400-12500 = £10900 taxable
£10900 x 0.2 = £2180 (9.3% of gross pay)
Total tax paid = £2180 (9.3% of gross pay)
 Income Tax - Practice
Calculate the tax due on the following incomes.
2. £4800 per month (Police Chief Inspector)
£57600 annually
Tax Free
£12500 at 0%
0% of 12500 = £0
Basic rate
£50000-12500=£37500
20% of 37500 = £7500
Higher Rate
£57600-50000=£7600
40% of 7600=£3040
Total tax paid = £0+£7500+£3040 = £10540 pa (18.3% of gross pay)
 Income Tax - Practice
Calculate the tax due on the following incomes.
3. £160 000 per annum (Top 1% of earners)
Tax Free
£12500 at 0%
0% of 12500 = £0
Basic rate
£50000-12500=£37500
20% of 37500 = £7500
Higher Rate
£150000-50000=£100000
40% of 100000=£40000
Additional Rate
£160000-150000=£10000
45% of £10000=£4500
Total tax paid = £0+£7500+£40000+£4500 = £52000 pa (32.5% of gross)
 National Insurance
 Introduced in 1911 as a contribution to a new
‘unemployment benefit’
 Why is it called ‘insurance’?
 Payment qualifies you for benefits.
 Maternity/paternity
 Pension
 Unemployment
 At 16 you should get a National Insurance
number.
 You’ll
Paying National Insurance need
these
values in
a minute

• Most people pay “Class 1” contributions

through their employer. We’ll focus on these.

Earn <£162
per week? https://www.gov.uk/national-insurance/how-much-you-pay
 NI - Example
1. You earn £900 per month. How much NI do you pay
each month?
 900 is below the £962 threshold
 Take away the nil-rate band
 900 – 719 = £181
 £181 attracts 12% NI
 181 x 0.12 = 21.72
 NI payable is £21.72 per month
2. You earn £1 000 per month. How much NI do you pay
per year?
 Subtract the 0% tax band.
 1000-719= £281. NI rate is at 12%.
 12% of £281 is 281x0.12=£33.72
 £33.72 per month is £404.67 per year.
 Value Added Tax (VAT)
 VAT was introduced in 1975 (superseded ‘purchase tax’)
 Currently 20%.
 Due on most goods/services that you’d buy for day-to-day use.
 Some goods are ‘reduced rate’ and taxed at 5%:
 Children's car seats
 Household fuel (gas/electricity)
 Sanitary products
 Others...
 Some goods are exempt:
 Insurance
 Health care
 Antiques when sold to public institutions
 Sports activities
 Gambling (there is a separate tax on gambling)
 Others...
 VAT - Example

QUESTION: Why is VAT separated out?

 VAT Practise
• These prices are quoted “ex VAT” so they need
VAT adding, what is their new price?
1. £34.00 34*1.2=£40.80

2. £150.50 150.50*1.2 £180.60

• VAT has been added to these items but your

business can claim it back, what is their
effective cost to you?
1. £1569 1569*0.8 = £1255.20

2. £145 145*0.8 = £116

3. £15.20 15.20*0.8 = £12.16

 CAUTION
• Tax rates vary.
• The latest information will be given in the
question or in the preliminary material.
• Make sure you read the question carefully,
you will be told what tax rates to apply.
 Practise
 Page 72
 Exercise 2M
 Questions 1 to 3.
 Extension:
 Look at the
figure.
 What does it
communicate?
 Use it to estimate
the tax and NI
you might be
paying.
 What do you think the title of this chart is?

Plenary

https://www.ifs.org.uk/publications/9178
 Homework
• Complete the first worksheet (3 questions)
– The second sheet (3 more questions) are extension and further practise.
• The answers are on the VLE. Mark you own work in green.
• Include an additional sheet that shows your working.

Use the
bands
given in
the
question

These are monthly

payslips. You’ll need to
keep that in mind.
Additional Slides for Calculating Tax
45%
Calculating Income Tax
£150 000
• What do we know?

40%

£50 000

20%

£12 500

O%

https://www.gov.uk/income-tax-rates
45%
Example
£150 000
A salary of £10 000
Salary doesn’t reach as far at the
40% orange. It is ONLY in the green bit
so all of the £10 000 is taxed at 0%
(tax free)
£50 000

20%
0% of £10 000 =£0
£12 500
£10 000
O% 10 000
45%
Example
£150 000
A salary of £30 000
The first £12 500 is
40%
taxed at 0%
0% of £12 500=£0
£50 000

20%

£12 500 £12 500

O% 12500
 A salary of £30 000
45%
Example The salary goes into
£150 000 the orange bar. That
bit is taxed at 20%
40% 20% of 18150 =£3630

£50 000
£30 000
20% 17500
£12 500 £12 500

O% 12500
 A salary of £50 000.
45%
Example This goes into the red
bars. Some will be
£150 000
taxed at 0%, some at
20% and some at 40%
40%
£50 000
2500
£50 000 £50 000

20% 37500

£12 500 £12 500

O% 12500