2. Objectives
1 Define ‘Pay As You Earn’ (PAYE)
2 Understand Payslip
3
4 Define work out pay and overtime payments
2
Define Gross Pay, Net Pay and Deductions
National Insurance (NI); income tax; tax code; personal
allowance
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3. What are ‘earnings’?
Do you know the median income of the UK? What is median and how does
it differ from average? Is that the amount you get to spend?
Can you identify
other common
words for
earnings?
3
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4. Gross pay and net pay
4
Why is there a difference?
Because of deductions! There are several payments that is required of you, be it
compulsory or something you willingly sign up for!
Deductions?
Example : Tax and National Insurance Contributions! These are compulsory payments to
the government, collected by HM Revenue & Customs. An example of non-compulsory
payment is pension deduction. Do you know what pension is?
So… Gross vs Pay?
In short, gross pay is the amount that we earn before any deductions are taken
away, and net pay is the amount we receive after all deductions!
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5. Pay As You Earn (PAYE)
5
What is PAYE?
The way in which employees pay their tax
Is it applicable for everyone?
What are the benefits?
Most of us will be paying our tax through PAYE. However, individuals with
more complex financial situations (ie self employed, high income, high
investment earnings etc) will have to file a self assessment tax return to
HMRC.
This system makes sure you pay your tax in full and saves you the trouble
from working out your own tax per year!
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6. Payslips
6
What is a payslip?
A compulsory document given to employee showing details of the pay
earned and the amounts deducted. It must be given at the time, or just
before, they are paid.
Is there a fixed layout?
What must be included?
There is not fixed layout! However, the points below MUST be included in
the payslip and your employer MUST give it to you either before or at the
time you are paid.
It must show the gross amount of the earnings, the reasons and amount
for deductions, the net amount of the earnings and an explanation of
how the earnings are paid.
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7. Example : Payslip
An airplane to describe a structure or parts
How the earnings are paid
The gross amount
3 The reasons and amount for
deduction
4 The net pay
7
2
1
2
3
4
1
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8. National Insurance
8
What is it?
A payment to the government which is used for thing such as Jobseeker’s
Allowance and State Pension
What is a NI number?
How is it calculated?
It is your personal account number used to identify you for proper recording
of your tax payment. Acts as a reference number for UK’s social security
system should you need to make a claim for government benefits.
It is based on your weekly pay and depends on how much you earn and
whether you are employed or self-employed
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9. Calculating NI
9
If I earn £1000 per week :
– I don’t have to pay NI on the £153.
• £ 0
– I have to pay 12% on earnings between £153 a week and £805 a week.
• £ 805- £ 153 = £ 652
• 652 * 12% = £ 78.24
– I have to pay 2% on earnings between £805 a week and £1000 a week
• £ 1000- £ 805 = £ 195
• 195* 2% = £3.90
– TOTAL = £ 0 + £ 78.24 + £ 3.90 = £ 82.14 per week.
No contribution
£153
+12 % of your weekly
earning
£805
+2% of your
weekly
earnings
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10. Income Tax Calculation
10
The total amount paid in tax has a positive relationship with your earnings; the
more you earn, the more you pay!
Personal Allowance
an amount of taxable income that they taxpayers are allowed to earn or
receive each year tax-free!
Current rate band is at £10,600.
Tax Band
Different amount of taxable income has different tax rates, and the
categorization of taxable income based on the amount is called a tax band.
Tax Rates
The percentage of the taxable income that will be paid out as tax.
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12. Tax Code
12
What is it for?
Used by employers to calculate the amount of tax to deduct from your pay.
How else can it be utilized?
How does it work?
Can be used by HMRC to collect tax that may not have been paid in a previous
year! HMRC will decrease that individuals personal allowance in order to claim
back the underpaid tax.
Tax code is made up of several numbers and a letter – for example ‘1000L’ or
‘717L’. The L at the end tells the employer that the code includes the personal
allowance and the number multiplied by 10 tells the employer how much pay is
tax free.
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13. Overtime
13
What is overtime?
It is the amount of time that someone works beyond normal working hours.
How much more will I be earning?
What happens when we work overtime?
-’time and a half’ = get paid 1.5 times your usual hourly rate
-’time and a quarter’ = get paid 1.25 times your usual hourly rate
-’double time’ = get paid 2 times your usual hourly rate
Earn the extra income for working extra hours, the payment rate
for those overtime hours will normally be at a higher rate than
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14. Sick pay
14
What happens if I am sick during work?
Some employers might not pay you for the time during which you are away
from work because of sickness.
How is it paid to me?
How does it work?
Your SSP will be paid to you by your employer on behalf of the government.
Your employer may seek reimbursement from the government in the future.
You will be given Statutory Sick Pay (SSP) of £87.55 each week if you are
sick for at least four days in a row, are earning at least £111 a week
and have told your employer that you are sick.
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15. Student Loans
15
Are there any support available for student loans?
The government offers student loans as part of the financial support
package.
How much am I paying back each time?
How are they paid back?
The amount of repayment depends on how much more than £21,000 the
employee earns.
Employers will take the repayment out of their wages as deductions through
the PAYE system.
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16. National Minimum Wage
16
What is minimum wage for?
It makes sure that employees are not forced to work for a low and
unfair rate of pay
Age Minimum per hour
until 30 September
2013
Minimum per hour
from 1 October
2014
16-17 £3.72 £3.83
18-20 £5.03 £5.18
21 and over £6.31 £6.50
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17. Documentations
17
What documents are there?
P45 and P60 are two common tax documents that must, by law, be given to
you.
P60
P45
• summarizes your pay
• tax deducted for the tax year.
• used when you stop working for an employer. It shows the record of the
taxable income that you have earned for the year, including the
amount of tax and NI you paid.
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18. Self-assessment
18
Who is it for?
• Self-employed
• People with complex
financial situations
• Earnings not taxed
(investments)
• Two jobs
(combined income
puts them in
higher rate tax
band)
How is it done
• Online
• Preferred by HMRC
• Paper Tax Return
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19. • a) Work out
Karim’s
monthly
gross pay and
monthly tax.
Quiz Time!!! (GROUP WORK)
Karim, who works in a gym, has a tax code of 803L.
He earns £12,480 in a year.
Karim owes some tax because he had a second job
last year as a casual DJ and did not pay tax on his
earnings.
The government found out about it and
told him that he owed extra tax. The tax code has
reduced the income that he can earn without paying
tax. This means that he is now going to pay back the
tax that he owes.
22. Objectives
1 List the different types of bank account
and compare them.
2 Understand how bank accounts work.
3 Understanding the ways of accessing
information about accounts.
4 Understand special signing
arrangements.
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23. Current
account
1. THE MOST COMMON type of bank
account
2. Suitable for everyday needs
3. It is the account into which your
income (that is, your wages or salary)
will be paid, usually by direct transfer.
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24. A current account has 2 number
1. Sort code
a six-digit number, such as ‘12–34–56’,
which identifies the bank the branch
office at which the account is held
2. Account number
an eight-digit number that is unique to
the account holder.
Whenever a payment is made into the account, these two numbers must be
used to make sure that the money goes into the right person’s account.
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25. Charges on current accounts
VARIES ON THE ACCOUNT HOLDERS:
E.G BUSINESS MAN
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26. 1
2
3
4
5
Bank Statement
A cheque and a Debit card
Direct Debit
These are instructions given to your bank
to allow certain companies to take money
from your account to pay bills. Standing order
Overdraft
Facilities
for Current accounts
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29. Packaged
accounts
Current accounts that offer extra
benefits in return for a monthly
fee – known as ‘packaged’
accounts.
Makes up
almost a
quarter!
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30. Benefits of package accounts might included...
A range of
insurance
products
e.g. annual travel
insurance and
mobile phone
insurance
Access to the
VIP lounge at
various
airports
Protection
against the
consequence
s of identity
theft
Return lost
keys
schemes
Preferential
savings and
loan rates
Will-writing
Music
downloads
Did you know?
The fees payable vary. Llyods bank, the market leader, has 4 million account holders and
charges a fee of up to £17 a month.
Source: The Guardian SPOT FINANCE
31. Saving
accounts
Savings accounts are a safe place
to put spare cash that you do not
require for everyday expenditure;
as well as being safe, your money
earns interest, so it grows!
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32. Paying by paying straight into the
account over the counter at
the bank or building society
.
Ways to put money into your saving account
Regular payments by making regular
payments using a standing
order.
Transfer by transferring from your
current account.
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33. Types of saving accounts
Instant-access accounts
You can take your money out
whenever you want it.
.
Notice accounts
You must tell the bank or building
society before you want to take
money out of a notice account.
2 types:
❖seven-day and
❖one-month notice accounts.
.
Regular savers accounts
Encourage you to put some
money into the savings account
on a regular basis.
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34. Types of saving accounts
Individual savings account
Tax-free savings scheme
offered by most banks and
building societies, and some
other organisations too.
Child Trust Fund
The Child Trust Fund (CTF) is a
long-term, tax-free savings
account for children
Junior ISA
Tax-free savings accounts for
children under the age of 18
who do not qualify for the CTF.
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36. Annual Equivalent rate (AER)
All savings providers must therefore quote the interest rate as an annual equivalent rate (AER). This
means that the interest rate on all accounts, even those that pay monthly, is quoted as if interest were
paid once a year, making it much easier to compare one account with another.
Some savings accounts pay interest yearly and some pay monthly
OR ?
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37. Loans
accounts
Loan accounts are an arrangement with the
bank.
The bank lends money - the customer
makes regular repayments
Loans are for larger sums of money (such as
several thousand pounds) and for longer
periods of time – for example, 12 months,
three years, five years, seven years, or 15
years.
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38. 2 Types of loan accounts
Personal Loans
By getting a loan from a bank or building
society.
The monthly repayments will be the
same each month and the interest rate
will not change.
Mortgages
Mortgages are loans that are used to
buy a home, such as a house or a flat.
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39. Types of repayment method
1 2 3
Repayment mortgage Interest-only mortgage Loan to Value (LTV)
- monthly repayments for an
agreed period (‘term’) until loan
is repaid, including the interest.
- How is the interest rate
applied?
- How does the repayment
work?
- How is it different
compared to Repayment
Mortgage?
- Lender will lend only a certain
percentage of the property’s
value to begin with
- How does the repayment
work?
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40. Special types of mortgage accounts
Offset mortgages
Current-account mortgages
An offset mortgage is a way of reducing the
interest payable on a mortgage.
You have to give up your savings interest, but it
can be worth it because it will reduce the amount
charged on your mortgage.
By offsetting the savings against the mortgage to
reduce the amount of interest charged, this can
result in either lower mortgage repayments or
result in the mortgage being repaid more quickly
instead.
The mortgage is shown as though it were one very
large bank overdraft on your current account.
The maximum overdraft is calculated using income
and LTV; the bank produces a schedule of by how
much the overdraft must reduce each month and will
show this on your statement.
Offset Mortgage
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41. Calculating interest
APRAER
Banks make money by charging interest on their lending.
To work out the cost of borrowing, you will need to work out the interest costs. Interest is stated as a
cost for each year.
official rate for saving official rate for borrowing
includes any necessary fees &
interest charges, represents the
true cost of the loan.
gives you the overall equivalent
cost of a debt
Annual Equivalent rate Annual Percentage rate
shows what you will get over a
year if you put money in the
account and left it there
method of comparing
interest rate to savings
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42. 2 types of APR
Fixed APR Variable APR
The APR on a personal loan is
fixed, meaning that it does not
change over the life of the loan.
To work out your monthly
repayments, the bank or
building society will show you
a table.
If the interest rate on your borrowing
can change, the APR is said to be
‘variable’. Variable APR means that your
interest payments can go up or down each
month.
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44. How to get money from your bank
account
Over the
Counter
Cash cards/
Debit cards
Standing
order or bank
transfer
online or
telephone
banking
ATM
Direct Debit
Cheque
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45. The clearing cycle
the process by which the money is transferred from the account of the payer (that is, the person writing
the cheque) to the account of the payee (that is, the person to whom the cheque is paid)
The cheque is paid into the bank
account.
Cheque is paid
A cheque is cleared for interest
payments. This means that, from
Day 2, you will start to earn interest
on the money paid in by cheque.
Interest payment
You can be certain that the cheque
has been paid. (The bank now
allows withdrawals from saving
accounts.
Done!
Your bank will allow you to
withdraw the money (except from a
saving account). The reason why
there is a delay is that the bank has
to make sure that the person who
wrote the cheque has enough
money in their account to cover it.
Withdraw the money
Day
1
Day
2
Day
4
Day
6
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46. Balance enquiries and access to account
information
Bank Statement
Bank statements list all
of the transactions
that put money into
and take money out of
a bank account.
Telephone Banking
You will then hear your
balance and the
computerised voice will
tell you the last five
entries on your
account.
ATM
Up-to-date balance
can be obtained from
ATM.
Online/Mobile Banking
It allows customers to
conduct banking
transactions using a mobile
device e.g. mobile phone or
tablet.
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47. Special Signing Agreements
When you open a current account, the bank will ask for a
specimen of your signature.
This specimen will be compared with any other items that you sign
at a later date to ensure that it is the account holder who is giving
the instructions.
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48. Joint accounts
Legal requirement: All parties who want to
open the account together have to provide
suitable evidence of identity to prove to the
bank who they are.
Possible arrangements: (depends on the parties)
if 2 parties, any 1 of them can sign , or they would
prefer both signatures.
OR… if 3 or more parties, all of the signatures
Must be signed.
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49. The Joint
Account
Mandate
Joint &
Several
Liability
A mandate is an instruction given to a
bank. Legal meaning: All parties are liable for the
whole debt on a joint account even if they
did not agree to it..
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50. Power of Attorney
2 types of attorney:
1. An attorney is appointed for a fixed period
of time.
2. An attorney is appointed who will look after
a person’s finances at some time in the future
should that person become sick or mentally
incapacitated. Known as a ‘lasting power of
attorney’, this type has to be registered
before it takes effect.
Sometimes, a person may not be able to look after
their own affairs themselves and will appoint an
‘attorney’ to have control over their finances.
However, that person must have full mental capacity
at the time that the forms are signed.
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