Unit 2 - Personal Finance : National Insurance

Question 1

How to find the amount of national insurance tax paid per year

Answer 1

First take the annual salary and minus basic allowance (£12 570) to give you the taxable income. If the taxable income is more than £37 700, subtract £37 700 from it to find the amount in the next band (do for however many bounds necessary). Multiply the £ by their respected % for their band (13.25% for basic, 3.25% for higher, etc). Find the total tax paid and put it over the annual salary x 100 to find the % of salary paid as tax yearly.

e.g. Donald is an accountant with an annual salary of £82,000. How much tax does he pay per year?

Annual Salary £82 000
Basic Allowance £12 570
Taxable Income £69 430

Basic Tax £37 700 x 13.25% = £4 995.25
Higher Tax £31 730 x 3.25% = £1 031.23

Total tax paid = £6 026.48

Percentage of salary = (6 026.48/ 82 000) x 100 = 7.35%

Question 2

What’s national insurance used for?

Answer 2

Money paid to the government by employees for…
• State pensions
• Jobseeker’s Allowance
• Employment and Support Allowance
• Maternity Allowance
• Bereavement Support Payment