Income & Tax (WJEC GCSE Maths & Numeracy (Double Award)): Revision Note

Income & Tax

What does income mean?

• Income refers to the money that an individual or household receives on a regular basis

  • e.g. from a job

• The term salary usually means money from your job that comes in fixed regular annual or monthly payments

• The term wage usually means money from your job that comes in irregular payments based on the number of hours you work that day / week etc

  • A wage is paid at an hourly rate, e.g. £13 per hour

• Income you earn above a certain amount (above a threshold) will be taxed

What are taxes?

• Taxes are the money that people and businesses pay to the government

• The government then spends it on public services like healthcare, schools, welfare benefits, and infrastructure like roads

• Some taxes are taken off your income or profits (things you make money on)

  • E.g. Income tax, national insurance, and inheritance tax

• Some taxes are added on to your spending

  • E.g. VAT (value added tax) is applied to the price of many things you buy

    • That extra money you pay ends up going to the government

  • VAT is generally 20% but there are some products which are lower or are exempt

What is income tax?

• Income tax is a tax paid on money earned from employment

  • It is also paid on profits earned by people who are self-employed

• There are other types of income that are also subject to income tax

  • This includes pensions, rental income, and interest on savings above a person's allowance

• Employers deduct income tax from employees before paying them

  • The system of paying income tax (and national insurance) automatically from your salary or wages is known as PAYE; pay as you earn

• The details (breakdown) of this will be shown on employees' payslips

  • A payslip shows you how much you are paid each month / year etc

How is income tax calculated?

• Most people in the UK have a personal allowance

  • This is the amount of income you can earn before paying income tax

  • The current personal allowance (2025-2026) is £12 570

    • You never pay tax on your personal allowance (it is always protected)

• Anything earned above the personal allowance is subject to income tax

  • This part of your income is called your taxable income

    • E.g. If you earn £100 over the personal allowance, you only pay income tax on that £100

• Your income is split into different groups called marginal income tax bands

  • These are taxed at different rates

    • You pay the given tax rate for the amount of money within that band only

• The table below shows income tax bands in the UK for the year 2025-2026

  • The bands and rates are controlled by the government, so may change year to year

What is national insurance?

• National Insurance (NI) is another tax on income

  • It is often referred to as national insurance contributions (NIC)

• It is used to pay for state pensions and other workers' benefits

  • E.g. Statutory sick pay and maternity leave

• Employers deduct national insurance from employees through the PAYE system

  • The details of this will be shown on employees' payslips

• Employers themselves also have to pay a contribution to national insurance

• Those who are self-employed must also pay national insurance

• Similar to income tax, there are bands for national insurance

What is on a payslip?

• Your employer should provide you with a payslip when you are paid

• It contains the following information about how your pay is calculated

  • It is important to be able to interpret it, to make sure you are being paid correctly

• Basic pay

  • This is your usual pay for the period (month or week etc) before deductions

  • It can be used to calculate your annual pay

• Gross pay

  • This is the total payment before deductions

  • It includes any extra money earned

    • e.g. through working overtime (time over your usual hours) or bonuses

• Tax code

  • The number in your tax code represents your personal allowance

    • E.g. 1257L means your personal allowance is £12 570

• Tax year

  • The tax year starts on the 6^th of April

  • Any "year to date" values are calculated from this date

• Income Tax

  • The amount you pay as income tax for the period

• National insurance

  • The amount you pay as national insurance for the period

• Pension

  • You may choose to pay into a pension

  • It is not a tax

  • A pension is a form of savings which you pay into through your working life, to then use when you retire

• Other deductions

  • E.g. Student loan payments (from university study) are deducted as part of your payslip

• Net pay

  • This is your gross pay minus your total deductions (taxes, pension etc)

  • This is the money you will receive as cash or into your bank account