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  • Writer's pictureJessica Proctor

What they don’t teach you in school

Taxes


Almost everything is taxed, from your car to your income. Schools lack in teaching students about tax - as previously suggested it may be because they want you to become part of the system which feeds the government money. There are some key things you need to know about tax, From how much you should pay, to how to be smart with your tax payments.

If you earn under 12,500 pounds you are not taxed on your income. However, as your income increases, so does your tax. Anything between 12,500 pounds and 50,000 pounds is taxed at 20% on what you earn over that 12,500. Between 50,000 pounds and 150,000 pounds, you pay 40% tax and anything above this is 45%. Many businesses avoid this tax for example if you earn 25,000 pounds you can say for everything you earned over the 12,500 pounds cap is business expenses that you will not be taxed on. This is a very intelligent way of playing off personal expenses as business expenses as long as you own the business. However, you must be careful if you take this approach because if it is deemed that you are falsifying this information you can be charged with tax evasion or fraud. Some things that you could include in these business expenses would be the cost of a printer, technology or petrol for your car or even the car itself for travel to business meetings – although things like your weekly shopping would not be included in this.


There is a common misconception that you will have more money in the end if you earn a certain income that is low compared to paying more tax on a higher income. However, this is untrue because you only pay tax on above a certain amount. For example, if your income is £30,000 a year you can expect to pay 20% tax on the money you earn over 12,500 which is 17,500. So you are paying 20% of 17,500 pounds, Which is around 3500 pounds so, in the end, you have 26,500 pounds. However, if you were earning 55,000 pounds you would only be taxed 40% on the money that is over the 50,000 tax band which is 2000 pounds, leaving you with 53,000 pounds, - and everything under the 50000 bracket to be taxed at 20%. The misconception is that you have to pay tax on all of your earnings for example people believe that you will be taxed 40% if you're 55,000 pounds wage, Which would be 22,000 pounds leaving you with just 33,000. Even if we look at This within a smaller margin and suggest person a earns 49,000 pounds and person b earns 51,000 pounds after-tax person b will still have more money because they are only taxed on money they have earned above 50,000, and the normal 20% on everything below this.


An important thing to note about taxes is that after you leave a job you should receive a P45 summarising an accumulation of tax you have paid at that job if this is wrong you should be notified and it should be corrected and refunded at the end of the tax year which is usually in April. The reasoning for this being wrong is if somebody is taxed automatically because they have two jobs so the tax office assumes you were earning over 12,500 pounds even if you weren’t.


There could be a number of reasons why schools don't teach how to pay tax - the main one is because you are usually automatically taxed or you are sent a letter such as for council tax explaining how much you owe and how to pay it. In some instances, they won't tell you how much you owe and expect you to figure it out yourself, usually in cases of the self-employed, but this is generally easy to calculate however you can be heavily fined or face prison if you get it substantially wrong or avoid paying tax.

Credit ratings & mortgages


There is a simple trick into getting a good credit rating – small spends, small-time, often. This is essentially saying you should spend money on your credit card in small amounts, such as for petrol or grocery shopping, and never spend money you don't have because then you won't be able to pay it back in a small amount of time. The quicker you pay it back the higher your credit rating will be - if you pay it back on time your credit rating will not be affected badly. If you do this often you can build up a very high credit rating. Credit cards can be a useful tool even if you don't need them, for example, if you know you have money on your debit card to buy petrol buy it on your credit card instead and then pay the money back from your debit card within the month as this will boost your credit rating without causing you to pay any excess interest.


When buying a house it is very important to have a high credit rating. Lenders put all the data they have on you into an algorithm in an attempt to predict your financial future based on your past. This is called a credit check which happens when you apply for a loan. When buying a house in most cases the down payment ( which is money you pay upfront) is normally about 15% so if you're buying a 200,000-pound house that is 30,000 pounds. The remaining 170,000 pounds to pay off is put into a mortgage which is essentially paying rent each month except you're buying the house. The average income needed to buy a 200,000 pounds house is about 44,000 pounds, and lenders will supply you with more money provided you pay interest on it so at the end you will be giving more money back to the lenders than what they lent you, which is why they prefer high credit ratings and incomes. The higher the credit rating you have the higher chance of a loan, So it is important that if you are considering taking out a loan in the future you have factored your credit rating into this.

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