Taxes are money that government collects in order to be able to pay for things such as schools, hospitals, roads and all the other services we use. There are lots of different taxes but the Numeracy Framework focuses on VAT and Income Tax.
Pupils in year 8 are expected to understand the basics of VAT. At the moment, raising taxes through VAT is not devolved to the Welsh Government. You pay the same rate of VAT in Wales and England and the money raised goes to the UK government.
Value Added Tax – this is a tax applied to the things we buy. VAT is charged at the following rates:
- 20% – most goods and services
- 5% – some goods and services (childrens’ car seats and some energy-saving materials) are charged at the lower rate
- 0% – most food and childrens’ clothes don’t have VAT applied
A business will calculate the VAT by multiplying the selling price of the product by the VAT rate and charging you the “gross” amount.
E.g. a DVD costs £8 but with 20% VAT added will cost the customer £9.60. The extra £1.60 goes to the Government.
A simpler method of calculating percentage increases would be to multiply the price by 1.2 for the 20% VAT rate or by 1.05 for the 5% VAT rate.
You can find out more about the different products that have VAT applied on the UK Government website.
It is expected that more able students should understand income tax. Of course eventually we all need to understand it!
Income tax is tax that people pay on the money they earn and most is paid through PAYE (pay as you earn). In other words, the tax is taken out of your earnings before you receive them. Most earnings are covered by this but some income is tax-free. The amount of income tax people pay depends upon how much they earn. The system attempts to be fair but there will always be people who don’t think it is fair!
The UK Government website has detailed information about income tax.
The income tax rates for most people are as follows:
Earnings up to £10,000 – no tax paid.
Earnings between £10,001 and £41, 865 – 20% tax paid (basic rate).
Earnings between £41,866 and £160,000 – 40% tax paid (higher rate).
Earnings over £161,000 – 45% tax paid (additional rate).
Year 9 students are expected to be able to calculate using foreign money and exchange rates. In order to calculate the amount of money one currency is worth in another currency, the start amount must be multiplied by the rate.
More able students are expected to understand and demonstrate the real-life process of foreign exchange.
Exchange rates are set by the supply and demand for a currency. If more people want to buy a certain currency, then it’s value goes up. If the US dollar goes up in value, we won’t get so many dollars per pound which means we’d have less spending money on holiday.
Exchange rates are not determined by holiday makers though as this represents a small fraction of the market for a currency. The main deals are done in millions of pounds by banks and investors. If a country is seen to be having problems with its economy then the value of their currency will fall.