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Unit 2.8 - Coggle Diagram
Unit 2.8
Tax codes
To help the employer to deduct the right amount of tax, HMRC provides a tax code for each employee
This tells the emplayer how much they can earn before they must start to pay tax.
The tax code is usually 3 numbers and a letter
The L in the standard tax code tells the HMRC that the employee is only allowed the basic personal allowance
Some people have BR tax code. This means that the employer should deduct basic rate tax on all the employees instructions to the emloyers earnings without the personal allowance
How taxes are calculated
A personal allowance is a set amount of income you can earn before you start to pay tax. Currently, it is £12,570
There are three rates of income tax, and they are applied to total income
from all sources after the personal allowance has been taken off.
Basic rate tax is charged at 20% . Currently, it is at £12571-£50270
Higher rate income tax is charged at 40%. Currently it is £50271-£150000
Additional rate tax is charged at 40%. It is currently £150000+
P45/P60
A P60 is geven to each employee at the end of the tax year. It shows how much they earned during the tax year, the final tax code, and how much income tax and NI the employer deducted.
A P45 is given when the employee leaves the employer. It shows their total pay, income tax and NI. When they start a new job, they must give the P45 to the new emplyer
National Insurance
Employers are responsible for collecting and paying NI for their employees.
Employees pay NI class 1, which is calculated on a sliding scale as shown in the Table 8.1
What does a payslip look like?
The payslip includes: The pay method, the tax code, an NI number, the type of NI that the person pays, How much they were paid , how much of her wage was deducted for the month, the cumulatives, and the total payment after all deductions(Net pay)
How sel-employed pay tax
Self-Emplyed people are taxed under a different system as their income can vary from time to time.
Savings Interest
If you have any money in a savings or a biuilding society, any interest earned ins taxable.
for basic-rate taxpayers, the first £1,000 of interest received each tax tear is tax free
for higher-rate taxpayers, the first £500 of interest received each tax year is tax free