The problem
Income tax is paid on any money you earn over your personal tax allowance. The personal tax allowance is currently set at £10000. Above this amount, tax is paid at different rates, depending on how much you earn.
The table shows the rates for 2014/15.
| Tax rate |
Taxable income above your personal allowance |
| Basic rate 20% |
£0 to £31 865 |
| Higher rate 40% |
£ 31 866 to £150 000 |
Work out the income tax each of this person paid in the 2014/15 tax year.
a. Ella earns £26 500 per annum.
b. Sammy earns £28 760 p. a
c. Anthony earns £47 000 p. a
d. Pippa earns £73 850 p. a
The solution
a. Ella earns £26, 500
Personal tax allowance means you will not be charged tax till that amount
£26,500- £10,000 = £16,500 ( Ella needs to pay for this amount and she falls in 20% bracket)
=> 20% of 16,500= £3,300
b. Sammy earns £ 28,760
£28, 760 - £10,000 = £18, 760 ( 20% tax)
20% of £18, 760 = £3,752.
c. Anthony earns £ 47 000 p. a ( 20% tax till £31, 865, 40% tax after £31, 865 )
£47, 000 - £10, 000 = £37, 000 is the taxable amount
Till £31, 865 tax is 20%
=> 20% of £31, 865 = £6373
£37,000 - £31, 865 = £5135 ( 40% tax for this amount)
40% of £5135 = £2054
=> £6373 + £2054 = £8427
d. Pippa earns £73, 850
£73, 850 - £10,000 = £63, 850
Till £31, 865 ( 20% tax) => 20% of £31,865 = £6373
£63, 850 - £31, 865 = £31, 985 ( 40% tax)
=> 40% of £31, 985 = £12, 974
Total tax = £6373 + £12974 = £19, 167.
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