stion 1 part A
Caledoscope Ltd is a graphic design company operating mostly online with about 200 employees scattered between Aberdeen in Scotland and Manchester in England. Table 1 shows information on pay and tax for selected employees of the company.
1.1 Describe what is meant by a progressive income tax system and discuss one way that an income tax system may be structured so that it is progressive.
1.2a Complete Table 1 by using the Income tax and National Insurance Calculator to find Sarah’s and Mehmet’s pay after income tax and National Insurance have been deducted and, for each of them, their average income tax rate (not the average total tax rate).
1.2b Based on Table 1 (now that you have completed it), explain which income tax system, that of Scotland or England, is more progressive.
Table 1 Examples of pay at Caledoscope (2020/21 tax year)
Employee Residence Gross pay (£) Pay after income tax and National Insurance (£) Average income tax rate (%)
Janet England 65,000 46,340.00 20.77
Sarah Scotland 65,000
Avi England 36,000 28,120.00 13.06
Alan Scotland 36,000 28,032.43 13.30
Mehmet England 21,000
Jan Scotland 21,000 17,940.85 8.00
1.3 Avi’s line manager has agreed that Avi’s net pay will increase to £30,000 three years later (in 2023/24). Over these three years, inflation is predicted to average 3% per year. Using the Inflation calculator, select and report the relevant result from your calculation to help you explain whether in 2023/24 Avi is likely to enjoy a standard of living that is higher, lower or the same as today.
Question 2
Simon is an administrator living in Glasgow, earning £19,750 a year after deductions for tax, National Insurance and pension contributions. He is about to move into a flat with Michelle and her two young children. Michelle works in a café and makes £11,395.84 after tax and national insurance. She also receives £1,820 a year in child benefit. No-one described above has any other source of income.
2.1a Using the Household income equivalence calculator, calculate the annual equivalised net income of Simon and Michelle’s new household together.
2.1b With the aid of the same calculator, comment on how their individual household living standards have changed compared to when they were living separately.
2.2 Draw up a monthly cash flow statement using the following expenditure information for Simon and Michelle in their new shared flat.
• Rent: £950 a month
• Home Insurance £354 per year
• Credit card repayments £53 per month
• Council tax: £1200 a year
• Food and household items: £135 a week
• Alcohol, going out, leisure activities: £175 a month
• Water, gas and electricity: £350 a quarter
• Phones and broadband: £124 a month
• Transport: £350 a month
• Clothes: £175 per month
• Other spending: £145 a month
2.3 Simon and Michelle want to save up for a family holiday in Spain, and they estimate they will need £2000. Comment on their current financial situation and consider potential adjustments they might make to their cash flow in order to save the £2000.
Question 3
3.1 Toby has been listening to his friend Greta and decided to invest in renewable energy and install solar panels to his cottage. The total cost of the solar panels is £4,000. However, he doesn’t have the money to pay the full amount upfront so is looking at two different financing options.
• Option A is to buy it partly on his credit card which has an APR of 27.9%. Toby has no outstanding credit on the card at present, but he’ll have to use up his whole credit limit. Even then, he will need to find £1,200 from elsewhere, which he can just about scrape together, but it will wipe out his savings. He would then aim to pay off the credit card by paying £75 per month.
• Option B is the credit deal offered by the retailer. He can pay a fixed sum each month, spreading the cost over 36 months at an APR of 15.8%.
3.1 Briefly explain what APR is and what someone shopping around for credit might use it for.
3.2 Fill in Table 2 using the Borrowing and saving calculator to calculate the missing figures and show your workings.
Table 2 Total interest options
Monthly payment Repayment period Total interest
Option A
Option B
3.3 Describe one advantage and two disadvantages of Option A over Option B.
