Hi, I'm Mrs. Wheelhouse, and welcome to today's lesson, which is from our unit of lessons on financial maths education.

I'm really looking forward to exploring some of the ways that we use maths in order to help out with our personal finances.

So let's get started by then.

By the end of today's lesson, you'll be able to calculate tax.

Now we're gonna be using various keywords today, so let's go through them.

Income tax is tax that you pay on your income.

National Insurance is a tax on income which qualifies you to certain benefits such as the state pension and maternity pay.

And there's value added tax, more commonly known as VAT, and that's a tax that is added to most products and services sold by businesses.

Our lesson is broken into two parts today.

We're gonna begin by looking at income tax.

The diagram shows a pay slip for someone who is paid monthly.

In this case, the employee does not receive all of the money that they have earned in the month.

Some of their pay has been deducted for income tax.

Income tax is tax on earnings and is sometimes referred to on payslips as PAYE or Pay As You Earn tax.

The amount of income tax that you pay differs depending on how much money you earn in a year.

The table shows the income tax rates and bands for England, Wales and Northern Ireland in 2024 according to gov.

uk.

This means that people do not pay income tax until they earn over £12,570 in a year.

If someone earns £15,000 in a year, would 20% of their entire wages be deducted for income tax? What do you think? No.

They only pay income tax on the extra money that they earn above the £12,570.

The diagram you see here is a visual representation of the income tax bands and rates for England, Wales, and Northern Ireland in 2024.

Each time your earnings cross one of the thresholds, you only pay the increased amount of tax on the amount earned above that threshold.

So let's see some examples.

Let's calculate the amount of income tax paid by someone who earns £11,000 a year.

How much do you think they'll pay? Well done if you spotted that their entire salary is within the personal allowance.

This means they pay no income tax.

But what about if someone earns £15,000 a year? Oh, we can see it falls in a different part of our chart.

Well, this person will pay no income tax on £12,570 of their salary, and they'll pay 20% income tax on the amount earned above that.

Well, what is the amount earned above that threshold? It's £2,430, and that's what they pay the 20% tax on.

Well, 20% of that is £486 and that's how much they'll pay.

What about someone who has a £60,000 a year income? Well, let's work out how this is done.

Well, the first £12,570 is not taxed at all.

20% income tax is paid on this amount.

Well, how much is that? That's £37,700, and we need to pay 20% of that.

Well 20% of that amount is £7,540.

We now need to pay 40% tax on the remaining amount.

Well, what is remaining? It's £9,730.

So we need to pay 40% of that, and that's £3,892 in tax.

So altogether, how much income tax is someone paying if they earn £60,000 a year? Well they're paying £11,432 of income tax.

Well done if you worked that all out.

Let's do a quick check.

The table shows the income tax rates and bands for England, Wales and Northern Ireland in 2024 according to gov.

uk.

A worker earns £12,000 a year.

So how much income tax would they pay? Pause the video and write down your answer now.

Welcome back.

You should of course have said they'll pay nothing.

Now, Sam says, "someone who earns £13,000 per year would pay £2,600 of income tax." Hmm, Sam's gone wrong there.

What mistake has Sam made? And explain why it's incorrect.

Pause the video while you work this out now.

Welcome back.

You should have said that Sam has calculated 20% of the entire salary.

Remember, this person would pay no income tax on the first £12,570 of their salary.

They only pay the 20% income tax on the amount earned above the £12,570.

So an employee earns £13,000 in a year.

How much income tax do they actually pay? Pause the video while you work this out now.

Welcome back.

Remember, the first £12,570 is not taxed.

It's only 20% of what's above that value.

Well, that's £430, and 20% of that is £86.

So how much income tax is paid? It's £86.

It's now time for your first task.

The diagram is a visual representation of the income tax bands and rates for England, Wales, and Northern Ireland in 2024.

For each annual income, calculate the amount of income tax required.

Part A, if we're earning £25,000 per year.

Part B, if we're earning £75,000 per year.

And part C, if we're earning £140,000 per year.

Pause the video while you work this out now.

Question two, the table shows the income tax rates and bands for England, Wales and Northern Ireland in 2024 according to gov.

uk.

Izzy says, "Someone who earns £51,000 would receive less money than someone who earns 50,000 because they pay a higher rate of income tax." Explain why Izzy is incorrect.

Pause the video and do this now.

Welcome back.

It's time to go through our answers now.

So for question one, for each annual income, I asked you to calculate the amount of income tax required.

So if we earn £25,000 per year, we're going to pay £2,486 in income tax.

If we earn £75,000 per year in part B, then we'll pay £17,432 of income tax.

And then for part C, if we're earning £140,000 per year we'll pay £44,175 in income tax.

Well done if you got those right.

Question two, you had to explain why Izzy was incorrect.

Now, you might have wanted to do some calculations for this.

That's how I did it.

I said that this person would only pay the increased rate for the amount they earn above £50,270.

And here's the calculations.

A worker earning £50,000 would pay £7,486 in income tax.

So they'd receive £42,514 after deducting that income tax.

A worker earning £51,000 would pay £7,832 in income tax so would receive £43,168 after deducting income tax.

So saying that they'd only pay the increased rate for the amount they earn above the £50,270 is good, but then actually calculating how much each person takes home shows that the person who has the highest salary is receiving more money.

Well done if you were able to work through all that justification.

It's now time for the second part of our lesson, and that's on other forms of tax.

Income tax is not the only tax that may be deducted from your pay.

The payslip at below shows how much money is paid towards this worker's National Insurance contribution.

National Insurance is a tax on earnings that people normally start to pay when they turn 16 years old, which is when they receive their National Insurance number.

The amount you pay towards National Insurance is referred to as your National Insurance contribution.

You pay National Insurance contributions to qualify for certain benefits such as the state pension, maternity pay, and financial support if you're unable to work.

The amount you pay in National Insurance contributions differs depending on your employment status and how much you earn.

National Insurance contributions are calculated in a similar way to income tax in that there are thresholds when you pay different rates and each rate is only applied to the amount that you earn above the previous threshold.

Information about thresholds for National Insurance contributions tend to be based on weekly earnings, but there are equivalent thresholds available for monthly earnings as well.

The table shows the National Insurance rates for 2024 to 2025 according to gov.

uk.

You do not start paying National Insurance until you earn over £242 a week.

If you earn between £242 and a penny and £967 per week, your National Insurance contribution will be 8% of the money that you earn above £242.

If you earn over £967 per week, your National Insurance contribution will be 8% of £725, plus 2% of the money that you earn above £967.

The £725 comes from the max amount that's taxed at 8%.

How much would somebody who earns £200 a week pay in National Insurance contributions? Did you spot it? That's right, they don't pay anything because they're under the £242 a week threshold, therefore their contribution is £0.

But what about somebody who earns £600 a week? What would they pay? Well, remember, the first £242 that they earn is taxed at nothing.

It's only the amount above that they have to pay 8% on.

So that means the amount that's being taxed at 8% is £358.

8% of that is £28 and 64 pence.

Therefore, their total National Insurance contribution is £28 and 64 pence.

Now, what about someone who's earning £1,100 a week? What will they pay? Well, remember, they pay nothing on the first £242.

Then they'll pay 8% of £725, which is £58.

And then the amount that's taxed at the 2% is £133, and 2% of that is £2 and 66 pence.

Therefore, altogether, this person will have a total National Insurance contribution of £60 and 66 pence.

Time for a quick check now.

The table shows the National Insurance rates for 2024 to 2025 according to gov.

uk.

How much would somebody who earns £750 a week pay in National Insurance contributions? Pause the video and work this out now.

Welcome back.

Well, you should have said that they'll pay a total of £40 and 64 pence.

Well done if you got that right.

Quick true or false now.

Someone earning £968 a week would pay less National Insurance than someone earning £967 a week.

Is that true or is that false? And don't forget to explain why.

Pause the video and do this now.

Welcome back.

Of course it's false, and you just had to explain why.

Well, both people will pay 8% of £725, and the person who owns £968 will also pay 2% of the extra £1 in addition.

Now, people also pay tax when they purchase some products or services, and this tax is called Value Added Tax, which is abbreviated to VAT.

VAT is charged on things such as goods like clothes, cakes, and video games.

Services such as haircuts, cleaning, decorating.

Hiring, or leasing goods.

For example, renting films or bike rentals.

In 2024, the standard rate of VAT in the UK was 20%.

Some things are exempt from VAT such as children's clothes, or have reduced rates of VAT.

For example, energy saving materials for the home.

Now, many countries charge VAT.

However, the rates of VAT can differ between the countries.

In shops in the UK, prices displayed tend to already include VAT.

Therefore, shoppers usually do not need to think about how much VAT they're paying unless they're able to claim it back.

The USA uses a different system called Sales Tax.

Rates of Sales Tax can differ between different states in the USA.

In shops in the USA, prices displayed might not include Sales Tax.

Therefore, the price you pay at the till could be higher than what is written on the price tag.

Let's see some examples of that.

Andeep selects a pair of running shoes in a shop.

The price includes VAT.

How much does he pay at the till? Sam selects a pair of running shoes in a store.

The price does not include Sales Tax.

How much do they pay at the till? So notice that Andeep is buying a pair of running shoes in the UK, and Sam is buying a pair of running shoes in the USA.

So let's see the differences.

For Andeep, he pays exactly what it says on the price tag.

In other words, £49 and 99 pence.

Sam, however, does not get that same deal.

For Sam, they have to add on 10% Sales Tax.

So in other words, Sam has to pay $54 and 99 cents at the till.

Now, let's consider if we wanted to know the price before the tax was added.

So for Andeep, what is the price before VAT? Well, here you've got to work backwards.

And you'll find that the original price is £41 and 66 pence.

In other words, the price before the 20% VAT was added.

For Sam on the other hand, this calculation's really easy.

The price on the running shoes is the price before the Sales Tax.

So in other words, $49 and 99 cents.

Let's do a quick check on that.

A store in the USA displays a pair of sunglasses.

The price does not include Sales Tax.

The rate of Sales Tax in this state is 15%.

What is the price after Sales Tax is applied? Pause the video and work this out now.

Welcome back.

You should have added on 15% and got $34 and 50 cents.

So how much Sales Tax is paid for these sunglasses? Pause the video and work this out now.

Welcome back.

Well, there are two ways to do this.

You could either work out how much is paid at the till for these sunglasses and then subtract the cost on the price tag, or you could simply have found 15% of the price on the tag.

Either way, you'll get $4 and 50 cents.

A shop in the UK displays a pair of sunglasses, and the price includes VAT, which is at 20%.

What is the price of the sunglasses before VAT was applied? Pause the video and work this out now.

Welcome back.

You should have worked out it's £25.

So how much VAT was paid for these sunglasses? Pause the video and write down your answer now.

Welcome back.

You should have said it was £5.

If the price before VAT was added is £25 and the price of the sunglasses after VAT is added is £30, then the difference is £5.

Well done.

It's now time for our final task.

Question one, the table shows the National Insurance rates for 2024 to 2025.

Please calculate the National Insurance contribution required for each weekly income.

And then in part B, what is the max amount of National Insurance contribution that is obtained from the 8% rate? Pause the video and work this out now.

Question two, Izzy buys a T-shirt from a store in Florida.

The price on the tag says $20, and this does not include Sales Tax.

The rate of Sales Tax in Florida is 7.

5%.

Part A, how much Sales Tax is charged for the T-shirt? And part B, how much does Izzy pay for the t-shirt at the till? Question three.

An employee's required to work from home and buys a desk for their home office.

The desk costs £150, including VAT.

The rate of VAT is 20%.

The employee is able to claim back the amount paid in VAT.

So for part A, what was the price of the desk before VAT? And part B, how much money do they claim back in VAT? Pause the video and work this out now.

Welcome back.

It's time to go through our answers.

So for part A, for each weekly income, I asked you to calculate the National Assurance contribution.

You should have got £0, £47 and 4 pence, £63 and 66 pence, and £78 and 66 pence.

Well done if you got those right.

So what is the maximum amount of National Insurance contribution obtained from the 8% rate? It's £58.

Question two part A, how much Sales Tax is charged for the t-shirt? It's $1 and 50 cents.

So how much does Izzy pay at the till? She pays $21 and 50 cents.

Question three, what was the price of the desk before VAT was added? It was £125.

So how much money is claimed back in VAT? That's £25.

Well done if you've got these all right.

It's now time to sum up what we've learned in our lesson today.

Income tax is paid on any money earned after your personal tax allowance.

National Insurance is also paid if you earn more than a certain amount.

Tax is paid on most goods and services.

This is referred to as Value Added Tax or VAT.

Well done.

You've worked really well today.

I look forward to seeing you for more lessons in the future.

Goodbye for now.