INCOME TAX In this activity you are going to work out how much tax people with different incomes have to pay. You need to read the following information very carefully so that you can do the calculations properly at the end. These numbers are all fictional but they are based very closely on reality. EVERY PERSON HAS A PERSONAL ALLOWANCE (this is an amount of earned income that is TAX FREE). The basic allowance for everyone currently is: £4, 500/yr EXAMPLE I earn £20,000. I have an allowance of £4, 500 that is TAX FREE. How much of my income will be taxed? ________________ 1. On the first £1,500 I pay 10% tax. This is called the starting rate. 2. If I earn any income up to £28, 000/yr my income is taxed at 20%. 3. If I earn any income over £28,000/yr my income is taxed at 40%. See if you can work out how much tax these people will pay. Study the example first. Fred earns £40,000/yr as an accountant. How much of his income does he have to pay tax on? (Answer : £40,000 – 4, 500 = £35, 500 ) How much tax will he pay? 1. 10% on the first £1, 500 = £152.00. This leaves £33, 500 left to tax. 2. 22% tax on the income up to £28,000 = £6, 160. 3. 40 % tax on income over £ 28,500 (£33, 500 – 28,000 = £5, 500) = £2,200 TOTAL TAX = 152.00 + 6, 160 + 2,200 = £8, 512 YOU WORK OUT: How much of his salary does Fred actually have to spend? How much does Fred actually earn a month? NOW YOU WORK OUT THE FOLLOWING: a. Jenny is a secretary at a law firm. She earns £16,000. How much tax does she pay? b. Sally is a nurse. She earns £14,000. How much tax does she pay? c. Vincent is Chief Executive of Burger King. He earns £100,000. What tax does he pay? d. Stan is a parcelforce van driver. He is paid £5/hr and works a 50 hr week. How much does he earn in a year? How much tax does he pay?