·        Payslips

 

Payslips come in a variety of designs.

They will usually show various totals and personal information, in addition to the actual pay.

 

Example

 

Name :	Joe Bloggs		Period	01/01/06	31/01/06
Employee	123456789		Tax Code  396L
Pay and allowances	Amount	Deductions	Amount	Breakdown of Overtime Rate             Hours
Basic Pay	2133.00	Income Tax National Insurance Superannuation Other	347.60 162.15 127.98 79.00
Gross Pay	£2133.00	Total Deductions	£ 716.73	Net Pay	£ 1416.27

 

 

 

 

 

 

 

Basic Pay = Pay earned during period without overtime or other remuneration.

Gross pay = Total of income earned during pay period.

Total Deductions = Total of all monies taken off.

Net pay = Gross pay – total deductions.  This is what you get “in hand” or “bottom line”.

 

Tax Code : This is how much you are allowed to earn before you pay tax.

Here, Joe Bloggs can earn £3960 prior to paying tax.

 

 

 

What is Joe Bloggs’ salary ?

His salary is £2133 x 12 = £25,596

 

 

Paul works a 35 hour week.

He is paid £5.80 per hour.

What is his weekly wage ?

 

Basic pay = Number of hours worked x hourly rate

                 = 35 x £5.80

                 = £203

 

 

·        Overtime

 

 

Overtime Paid = hourly rate x overtime rate x no. of hours worked

 

 

Example

Jack Soap earns £5.78 per hour. He normally works a 37 hour week, but this week

worked an extra 8 hours on  Saturday, at time and a half,

and 5 hours on Sunday at double time.

 

a)   How much overtime did he earn ?

b)   What is his gross pay for the week ?

 

 

     Overtime Paid = hourly rate x overtime rate x no. of hours worked

 

Overtime Saturday =£5.78 x 1.5 x 8

                              = £ 69.36

 

 Overtime Sunday =£5.78 x 2 x 5

                              = £ 57.80

 

Total overtime earned = £69.39 + £57.80

                                   = £127.16

He earned £127.16 overtime

 

 

Basic pay = £5.78 x 37 = £213.86

Gross pay = Basic pay + Overtime

                 = £213.86 + £127.16

                  = £341.02

 

His gross pay for the week is £341.02

 

 

 

·        Superannuation

Superannuation contributions are payments made towards a pension.

 

Example ( Use payslip above)

What percentage of  Joe Bloggs’  salary is paid on superannuation?

 

 

·        Income Tax

 

Income tax is payable on all taxable income.

 

Taxable income = Total income – Personal Allowance – Any other allowances

 

The rates vary every year, but usually you pay a certain percentage

     

      Table 1: Tax rates 2005/2006  Per Annum

Rate	Applicable to
10%	First £2,090
22%	Next £32,400
40%	Remaining Income

 

 

 

 

Example

 

Joe Bloggs has a salary of £25596 per annum, has a personal tax allowance of £3960, and contributes 6% of his salary to a tax deductible superannuation scheme.

How much income tax is he due to pay

a) each year ?

b)each month ?

 

                  

                          Salary                           £25596.00

         Less           Personal allowance      £ 3960.00

                           Superannuation

                           (6% of £25596)             £1535.76

                                Taxable income     £ 20100.24

 

                            Tax Due @ 10 %  of   £  2090.00       =     £ 209.00

   

                            Tax Due @ 22 %  of   £  18010.24      =   £ 3962.25

 

Total tax due £ 4171.25

                                                 

 

Joe Bloggs is due to pay £ 4171.25 per year.

 

This is £ 4171.25÷12 = £347.60 per month.

 

 

 

·        National Insurance

National Insurance Contributions  (NIC’s) are payable in addition to Income Tax.

The threshold of earnings is the amount of money you can earn without paying NIC’s.

For the tax year 2005/06, the earnings threshold is £94 per week or £408 per month.

                        

            Table 2 : NI information 2005/06

·             If you earn above £94 a week and up to £630 per week you pay 11 per cent of this amount as 'Class 1' NICs

·             you also pay one per cent of earnings above £630 a week as Class 1 NICs

·             you will pay a lower amount as an employee if you are a member of your employer's pension scheme ·                          (Discount of 1.6%   Tax Year  2005/06)

 

 

Example ( Use payslip above)

 

How much  Class 1 National Insurance is Joe Bloggs due to pay ?

 

                  

                          Monthly pay                            £2133.00

         Less           Threshold                                £ 408.00

                                             Taxable earnings   £ 1725.00

 

               National Insurance @ 11 %  of   £  1725.00    =     £ 189.75

                   Discount for membership of superannuation

                                                   1.6 %  of   £  1725.00   =     £   27.60

 

           NI    due £ 162.15

 

Joe Bloggs is due to pay £ 162.15 Class 1 National Insurance.

 

                                                 

 

More info on taxation

 

·        Utility Bills

Telephone, Gas  and  Electricity bills usually have a standing charge, plus

a cost for each unit used. VAT is payable on top of this.

 

 

Meter Reading		Number of units used	Cost per  Unit  ( pence)	Total     £
Present	Previous
95880	90880	5000	5.43	271.50
			Service Charge	27.80
				299.30
			VAT  8%	23.94
			Total Due	323.24

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of units used = Present reading – Previous reading

Total charge for units = Number of units used x Cost per  Unit

VAT is payable on the whole bill

 

 

·        Loans

 

   Secured Loans – If you default on payments, your house is at risk.

  Unsecured Loans – The goods bought are yours. Your house is safe.

  Hire Purchase – The goods bought are not yours until the last payment has been made.

  Mortgages – Secured loans for Houses, Ships, etc.

 

Example

 

Joe Bloggs wishes to borrow £10,000.

Which of the following  options is the cheapest way to borrow ?

 

 

Table 3 EasyLoan Secured Loans

Amount of loan	180 months		300 months
	Monthly	Total Repaid	Monthly	Total Repaid
£10,000	£96.35	£17,343	£78.08	£23,425
£30,000	£289.06	£52,030	£234.25	£70,276
£50,000	£481.76	£86,717	£390.42	£117,127
£75,000	£722.64	£130,075	£585.64	£175,691

 

 

 

Table 4 : Unsecured Loans R us

Amount of loan		3 years		5 years
		With protection	Without protection	With protection	Without protection
£5,000	Monthly Total	£181.51 £6534.21	£154.48 £5,561.28	£124.19 £7,451.15	£99.12 £5,946.72
£10,000	Monthly Total	£363.02 £13,068.41	£308.96 £11,122.56	£248.38 £14,902.35	£198.23 £11,893.56
£15,000	Monthly Total	£540.03 £19441.11	£461.30 £16,606.57	£367.96 £22,077.47	£295.11 £17,706.07

 

 

 

 

 

 

 

 

The cheapest way with EasyLoan  costs  £17,343 for 15 years .

The cheapest way with Loans R us    costs £11,122.56 for 3 years (unprotected.)

 

Fred’s Finance costs

 

 

 

Cheapest method is with Loans R us  for 3 years (unprotected.)  

 

 

Hire Purchase Example

 

A television costs £600 cash.

It is available on HP for a 10% deposit

followed by 36 monthly instalments of £ 15.25

 

How much cheaper is to pay cash ?

 

 

HP Price

Deposit       10% of £600   =    £   60.00

Instalments  36 x £15.75   =     £ 567.00

                         Total paid        £ 627.00

 

Cost of borrowing   =  £ 627.00 - £600

                                = £27

 

It is £27 cheaper to pay by cash.

 

 

 

 

 

 

·        Insurance

 

All insurance policies are based on the probability that a certain event will not happen.

The higher the probability is that an event will happen , the higher the  insurance premium.

 

 

 

Bank Interest

·        Simple Interest

Simple interest gives you a percentage return based purely on your original capital.

 

Example

Calculate the simple interest on   £500 for 3 years at 6% per annum.

 

   

·        Compound Interest

 

Compound interest uses the interest earned to increase the capital,

thus increasing interest.

 

Example

 

Calculate the compound interest on   £500 for 3 years at 6% per annum.

    

 

·        Foreign Exchange

 

 

 

Fred wishes to convert £150 into US dollars.

The exchange rate is £1 = $1.92, with no commission.

How many dollars does he get ?

 

No. of dollars = 1.92 x £150 = $288

 

Fred wishes to convert $150 back into pounds sterling.

The exchange rate is $1 = £ 0.52,  with no commission.

How much  does he get ?

 

Amount of pounds sterling = 0.52 x $150 = £ 78

 

When Joe converts  $150 back into pounds sterling, he receives £78.94.

There was  no commission.  What was the exchange rate ?

 

Exchange Rate = 150 ÷ 78.94 0 =  $ 1.90 to £1