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Tax Calculations and Analysis Activity

Calculate income tax for typical workers and analyze tax rates. Understand the concept of taxable income, rates, and personal tax allowance. Practice with examples and questions to enhance understanding of income tax.

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Tax Calculations and Analysis Activity

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  1. Nuffield Mathematics Activity Pay as you earn

  2. In this activity you will work out how much income tax typical workers pay.

  3. Income tax 2017 - 2018 Income tax is paid on ‘taxable income’ above a certain level. How to calculate income tax Taxable income = annual income – personal tax allowance Basic Rate:20% on the first £33 500 of taxable income Higher Rate:40% on taxable income from £33 501 to £150 000 Additional Rate45% on any taxable income above £150 001

  4. Example Katie earns £400 per week. Her personal tax allowance is £11500. To calculate the income tax Katie will pay: Think aboutWhat needs to be done first? Katie’s annual income = £400  52 = £20 800 Taxable income = £20 800 – £11500 = £9300 Think aboutWhat methods could you use to work out 20%? Income Tax = 20% of £9300 = £1860 per annum

  5. Example Liam earns £58 600 per annum. His personal tax allowance is £11500. To calculate the income tax Liam will pay: Taxable income = £58 600 – £11500 Think aboutWhat needs to be done first? = £47 100 Tax at basic rate = 20% of £33 500 = £6700 Tax at higher rate = 40% of (£47 100 – £33 500) = 40% of £13 600 = £5440 Think aboutWhat income tax will Liam pay each month? Total income tax = £5440 + £6700 = £12 140 per annum

  6. Question 1 Sam earns £2275 per month. His personal tax allowance is £11500. Sam’s annual income = £2275  12 = £27 300 Taxable income = £27 300 – £11500 = £15 800 = 20% of £15 800 Income tax at the basic rate = £3160 per annum

  7. Question 2 Meera earns £79 800 per annum. Her personal tax allowance is £11500. Taxable income = £79 800 – £11500 = £68 300 Income tax at basic rate = 20% of £33 500 = £6700 Income tax at higher rate = 40% of (£68 300 – £33 500) = 40% of £34 800 = £13 920 Total income tax = £13 920 + £6700 = £20 620 per annum

  8. Pay as you earn At the end of the activity • Does a person who earns £30 000 per year pay twice as much tax as someone who earns £15 000 per year? • Sketch a graph of income tax against taxable income. • How much do you need to earn before you become a higher rate tax payer? • Sketch a graph of income tax against annual earningsfor earnings up to £100 000.

  9. Income tax on £30 000 Think aboutWhat do you need to assume? Taxable income = £30 000 – £11500 = £18 500 Tax at basic rate = 20% of £18 500 = £3700 Income tax on £15 000 Taxable income = £15 000 – £11500 = £3500 Tax at basic rate = 20% of £3500 = £700

  10. Graph of income tax against taxable income Income tax £53 300 Think aboutIs income tax proportional to taxable income? £6700 £0 Taxable income £150 000 £33 500

  11. Graph of income tax against annual earnings Income tax Think aboutHow does the steepness of each line segment relate to the tax rates? £28 700 £6700 £100 000 £11 500 £45 000 £0 Annual earnings

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