You have been asked for help by your friends, Max and Minnie, both aged 30, who are too busy with their jobs to be able to manage their personal finances effectively. Max is a road surface operative. He earns £27,970 a year. Minnie is a psychologist. She earns £65,970 a year. Each of them contribute £2,400 of their annual earnings to their workplace pension scheme. The scheme is a “defined contribution” scheme, which invests their contributions to build up a pot of assets, out of which they can draw a pension when they retire. Their employers match their contributions up to £2,400 per year, so each of them has £4,800 going into their pension pot each year. Their own pension contributions are deductible from their income before their income is charged to income tax. But neither their own pension contributions, nor any income tax, are deductible before the calculation of national insurance. The contributions of their employers do not count towards the income on which tax or national insurance are payable. You have done some research and have discovered that for the current tax year, each of Max and Minnie will pay Class 1 National Insurance contributions (“NI”) and income tax. National Insurance Each of them pays no NI on their earnings up to the “Primary threshold” earnings. This is earnings up to £242 per week or £12,570 per year. They then pay NI at 12% on earnings between the primary threshold and the “Upper earnings limit”. The upper earnings limit is £967 per week, or £50,270 per year. Minnie will pay NI at 2% on her earnings above this. Income tax After deduction of their pension contributions, (but without any deductions for their NI,) they also pay income tax on their earnings. Each has a personal allowance of £12,570. Earnings up to £50,270 are then taxed at 20%, the basic rate, and Minnie’s earnings above this are taxed at 40%. Max and Minnie have asked you to prepare a table showing full workings of the amounts they will receive each month, after deductions of national insurance, pension contributions, and income tax.
You have been asked for help by your friends, Max and Minnie, both aged 30, who
are too busy with their jobs to be able to manage their personal finances effectively.
Max is a road surface operative. He earns £27,970 a year. Minnie is a psychologist.
She earns £65,970 a year.
Each of them contribute £2,400 of their annual earnings to their workplace pension
scheme. The scheme is a “defined contribution” scheme, which invests their
contributions to build up a pot of assets, out of which they can draw a pension when
they retire.
Their employers match their contributions up to £2,400 per year, so each of them has
£4,800 going into their pension pot each year.
Their own pension contributions are deductible from their income before their income
is charged to income tax. But neither their own pension contributions, nor any income
tax, are deductible before the calculation of national insurance.
The contributions of their employers do not count towards the income on which tax or
national insurance are payable.
You have done some research and have discovered that for the current tax year,
each of Max and Minnie will pay Class 1 National Insurance contributions (“NI”) and
income tax.
National Insurance
Each of them pays no NI on their earnings up to the “Primary threshold” earnings.
This is earnings up to £242 per week or £12,570 per year. They then pay NI at 12%
on earnings between the primary threshold and the “Upper earnings limit”. The upper
earnings limit is £967 per week, or £50,270 per year. Minnie will pay NI at 2% on her
earnings above this.
Income tax
After deduction of their pension contributions, (but without any deductions for their
NI,) they also pay income tax on their earnings. Each has a personal allowance of
£12,570. Earnings up to £50,270 are then taxed at 20%, the basic rate, and Minnie’s
earnings above this are taxed at 40%.
Max and Minnie have asked you to prepare a table showing full workings of the
amounts they will receive each month, after deductions of national insurance,
pension contributions, and income tax.
Step by step
Solved in 3 steps with 3 images
