Sage & Wise Ltd is a small health consulting company with about 100 employees scattered across the UK, all working from home. Table 1 shows information on pay and tax for selected employees of the company living in Scotland and in England.
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 (please see the diagram below) to find Nadia’s and Sanjay’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 Sage & Wise Ltd (2020/21 tax year)
Employee Residence Gross pay (£) Pay after income tax and National Insurance (£) Average income tax rate (%)
Nadia England 84,000
Lena Scotland 84,000 55,478.43 27.36
Francis England 42,000 32,200.00 14.05
Sanjay Scotland 42,000
Gareth England 21,000 17,920.00 8.10
Abigail Scotland 21,000 17,940.85 8.00
1.3 Gareth’s line manager has agreed that Gareth’s net pay will increase to £19,000 three years later (in 2023/24). Over these three years, inflation is predicted to average 2% per year.
Using the Inflation calculator (please see the diagram below), select and report the relevant result from your calculation to help you explain whether in 2023/24 Gareth is likely to enjoy a standard of living that is higher, lower or the same as today.
Income tax and National Insurance Calculator (this is the diagram)
Inflation calculator (this is the diagram)