Lesson video

Hello.

Welcome to this online lesson on financial mathematics, which were first studying income tax for our first lesson.

As always I want to make sure that you are making sure your phone is Switched Off and your apps are nice in songs and not going to disturb you that you are in a nice quiet space that you can concentrate and that you are ready to learn, Of course.

My name is Mr. Thomas, I'm going to be taking you through this little series on financial Maths.

So without further or do get yourself a pen and paper and a calculator and we will be on our way.

So if you're try this, what I'd like you to do is these following questions, pause the video now, give yourself five to ten minutes to have a go at that Please.

off you go.

Excellent.

So did you get these answers just here? So 0% of 10,000 of course is 0 pounds because, Well 0% of anything would just be 0.

20% of 20,000 will be 4000 pounds, 40% of 75000 pounds would be 30,000.

You could divide by 10 for both of those known terms or by 2 to get to 20%, get 10% by dividing by 10 and then multiplying by 4 et cetera.

You could do a bar model splitting up into ten equal parts.

1,2,3,4,5,6,7,8,9,10.

So you can split a bar equal to ten parts that would work.

And then seeing you need two of them or you need four of them et cetera.

Same thing for this, You can split it into 20 equal parts and do the same process, times it by nine or four equal parts.

and then realising is divided one of the equal parts by two and you get that.

So those are the correct answers there, please mark your work now and make sure that you've done the Corrections if they are wrong.

So then the sum of all those well, okay, that's interesting.

So the sum of all of them, then be 0 plus 7,500 plus 4000 which would give me 11,500.

Now, this is really important, the title of the lesson, right.

This is an illustration of income tax rates.

This one here.

This is how you may think that it's done and how it's actually done.

We are going to explore that a little bit further.

So you hold tight for one moment, don't worry, we're going to explain that further.

So for our connect today what I want us to think about is what a tax is and tax is the idea that it's compulsory amount or percentage from an individual or firm to contribute state revenue.

And then income tax specifically, is a percentage based tax placed on an individual's income.

So with that in mind we can say that, a tax is generally something good for society, it helps us raise revenue.

Our government can spend on vital services such as the NHS and education.

Anything at all.

So what does it actually look like in real life? Well, this is what it does look like.

So you pay 0% on the first 12,500 pounds earned, which is 0 through to 12,500 pounds Of course.

Then you pay 20% of your earnings are taxed for the next 37,500 pounds.

So anything between 12 and 1/2 and 50,000 pounds that you may have.

40% for the next 100,000 lets say 50,000 to 150,000.

45% thereafter, so above a 150,000 pounds.

so fingers crossed, just as far that you're going to be earning as much as that you maybe wanted to be a football player or a businessman, they could be adding up in this sort of bracket up here.

So really important if you do go on to do anything in your life and you are going to be earning money of course that you are aware of these income tax rates.

so, how much income tax would you pay then, if you earned twenty seven and a half thousand pounds per year.

Where you pay 0% on that first 12 and a 1/2 thousand pounds you earned.

You then pay 20% on the following 14 and a 1/2 thousand, because 27,000 pounds subtract 12 and a 1/2 thousand pounds is equal to 14 and a 1/2 thousand.

So actually it becomes a really simple problem at this point.

We do the sum of 0% of 12 and a 1/2 thousand pounds, which of course is zero pounds and 20% of 14 and a 1/2 thousand pounds.

Therefore, in reality you pay 2,900 pounds per year in income tax as a result.

So it's what we call on marginal tax.

It depends on how much extra, that one extra pound that you earn that could be taxed that one extra pound at 45% or it could be taxed at 0% depending on where you are and which bracket you're in.

So let's have a go of this from how much income taxes would you pay, if you earned 24,000 pounds per year? You can have a go at this yourself if you want to but pause the video now, or I'll go on.

So you pay 0% on the first 12 and a 1/2 thousand pounds.

From? We got that.

We saw in the previous example.

we then do 20% of the following 37 and a 1/2 thousand pounds.

You then do 40% on the following 24,000 pounds, because the idea here is 74,000 subtract 50,000, We've got to that point there're at next bracket, would be 24,000 pound that will be taxed at 40%.

So now becomes a simpler problem.

The sums are the percent of 12 and a 1/2 thousand pounds, 20% of 37 and a 1/2 thousand pounds and of course 40% of 24,000 pounds.

So when you do all those sums and you add more together you get 17,100 pounds per year in income tax.

Quite a lot to be paid.

But of course it all pays those vital services that we know and we love around our country.

So what I'd like you to do now for your independent task is I'd like you to have a go at working out, how much income tax you pay with the specific amounts there.

I've got the reminder there just to help you.

Pause the video now.

I'll give you 12 minutes to do that please.

off you go.

Excellent.

So the answers are as follows then.

So for number one, if you were to do that one there, you pay of course zero pounds in income tax, because you haven't earned enough to be taxed.

Right? number two, you do 20% Of 15,000, the difference between 15 thousand, and 12 and a 1/2 thousand would be 2500.

So we need to 20% of 2500 and that would of course be 500 pounds.

Number three, 24 and a 1/2 thousand pounds.

Well that one there, would be the difference between twenty four thousand five hundred and twelve and a half thousand so we'd have to do 20% of this one here, would be 12,000 pounds.

So with that case, we do 12% to 20% of 12,000 pounds, which of course would give us 2,400 pounds.

Number 4, what we do for that one there, we will do, 20% of the.

The one we do is 0% first of all of the 12 and a 1/2 thousand.

We then know it's going to take us to the next brackets.

so it's 37 and a 1/2 thousand pounds.

So 20% Of 37 and a 1/2 thousand pounds adds, but will then be up to 28,900.

So if 40% Of 28,900 pounds, so in that one there, we get our first answer as being, well our first answer that be? it would be 7,500, good.

And then the next one, we'd add 40% of 28,900.

That'll give us an 11,560.

So if we add those two together, of course we get 19,060.

Very good If you got that.

Now if you're doing a 190,000 per year, fingers crossed, you will be adding such a high amount at some point.

I'm going to do that just over here.

Now number five, we'll 0% of 12 and a 1/2 thousand.

Where we know that.

We can also just use the answer from over here, the 20% of 37 and a 1/2 thousand.

So we not going to have to do 7,500, because that refers to this income bracket here, this 20%.

And then we're going to have to add on 40% of a 100,000.

Right? Because we go up to that initial limit there.

So that's going to be, what would that be? 40% of 100,000.

That's quite nice easy one, 40,000 pounds, isn't it? And then we can add on 45%,thereafter 45% of 40,000.

So 45% of 40,000 would give me 18,000 Pounds.

So when I add those all together, what I get is of course, what do I get If I add these all together? Tell me now, nice and loud 65,500 pounds.

very good.

And then the final one.

I'll do that up here a little bit messy in terms of not reading out loud.

You get the idea.

So million pounds per year.

Well, we can steal the idea that we had this bracket here, this 20% and then the 40% maxed out.

right? We have 7,500.

Plus 40,000.

And then we're going to add on 45% worth of 850,000 pounds.

Do you see that We're doing a million subtract a 150,000 pounds there? So what we get is, what do we get if we do that? 382,500 pounds.

when we add that all together what we get of course is, what do we get if we add that all together? Come on.

All most there, 430,000 pounds.

Now, actually you're thinking that's probably really high figure.

I haven't even take into account some tax allowances you can have at that high level and you actually saw some more punitive measures in some ways.

Actually that you get that tax-free allowances to deduct it at certain point, but I've kept the example simple for now.

So with that in mind we can go on.

So if you were Explore task what I'd like you to think about is if you're the Chancellor of the Exchequer, someone who ultimately decides on whether tax rates change in the country, Would you increase or would you decrease income tax? If you increased income tax for every band, would this lead to lots of extra money for the Government? So much on revenue.

Asking yourself where would actually get more money if we increase taxes.

Why might it not? and would it be best to have a flat rate system where everyone pays the same rate regardless of earnings? So I want you to pause the video, have a think about those questions for the next 15 minutes, please.

Off you go.

Very good.

Let's go through it then.

I'll provide some support if you do need it.

So if you were the Chancellor of the Exchequer, would you increase or decrease income tax? Well, this is a really difficult question and there's no right or wrong answer.

If you mean increase income tax you get more money coming in.

So you get more government revenue coming in, income Revenue, tax revenue to your government coffers.

So you can spend more money in the economy.

However, of course that means that people like yourself and me and everyone else we don't have as much money to spend.

If we are in a job and we're not getting as much money because of all this going out for tax.

So in that sense, it's really difficult to get the firm balance of what's a good tax rate was and what's a negative tax rate in that sense? So there is no right or wrong answer.

So if you're increasing income tax fore every bound, why would this lead to loads of extra revenue for the government? Well, that we just said.

If you have an income tax rate of say like 90% for every single bracket, then of course you get lots and lots of money, but the problem being, if you were earning so much money, you could just potentially move abroad, can you? You could transfer your wealth over, you can transfer your job over.

Particular the moment of what's going on, we can see more and more people are working from home.

They can work at home from abroad, they can work their own business, they can transfer the businesses abroad Et cetera.

So it may not be the best idea necessarily to Increase the income tax for every bands possible.

Would it be best to have a flat rate system? Well again, that's up for interpretation, that's for you to decide.

Some countries have pursued that.

well they've said, "everyone pays 20% regardless their earnings." Some people say that might be unfair on those on the lower bracket and that its harder hits them, but then again for the more wealthy, it's fair in the sense that everyone is paying the same, everyone pays their own dues to the Society.

So again is very much up for discussion and for you to research as a whole.

So with that in mind, that now brings us to the end of our lesson.

You've learned lot in this, lots and lots of Applied stuff in terms of Mathematics and percentages with Finance et cetera.

So done a really good job to be able to keep up with that.

It was quite a tricky topic that is actually very poorly understood by a lot of adults and indeed people across the country.

So with that in mind, please take that exit quiz that you can smash it and prove to me how much you've learned.

So without further ado, I will be saying goodbye and wish you a good day and Just stay safe.