National Insurance and Income Tax – Higher tier
National Insurance
National Insurance (NI) is a tax you pay on money you earn.
Example
Here is an extract from a government website regarding NI.
Emyr works for a local company and is paid £475 per week. Owain is self-employed and also earns £475 per week. What is the difference in the amount of NI they pay?
Emyr and Owain both pay 0% on the first £155.
They both earn £475 per week:
£475 - £155 = £320.
So this is the amount on which they pay NI.
Emyr pays 12% of this = 12 ÷ 100 × 320 = £38.40.
Owain pays 9% of this = 9 ÷ 100 × 320 = £28.80.
Difference:
£38.40 − £28.80 = £9.60
Another solution
Another way would be to calculate 3% of £320 (difference between 12% and 9%). 3% of £320 = 3 ÷ 100 × 320 = £9.60.
Income tax
Here are income tax details for 2015-16, taken from a money advice website. It splits wages into bands and a percentage tax is paid on each of those bands.
So if you earned £100,000 Each year, annually, your pay would be split like this:
- First band – £0 - £10,600
- Second band – £10,600 - £42,385
- Third band – £42,385 - £100,000
Example
Rhodri earns a salary of £72,495 per year. Calculate the amount of tax he has to pay in one year. Then calculate how much tax he will pay each week (to the nearest penny).
Solution
His salary is split into three bands:
First band
He pays 0% tax on the first £10,600.
Second band
He pays 20% on £10,600 to £42,385.
£42,385 − £10,600 = £31,785.
20 ÷ 100 × £31,785 = £6,357.
Third band
He pays 40% on £42,385 to £72,495.
£72,495 − £42,385 = £30,110.
40 ÷ 100 × £30,110 = £12,044.
Total tax per year = £6,357 + £12,044 = £18,401.
Tax per week = £18,401 ÷ 52 = £353.8653846 = £353.87 (nearest penny).
