Caledoscope Ltd is a graphic design company operating mostly online with about 200 employees scattered between Aberdeen in Scotland and Manchester in England. Table 1 shows information on pay and tax for selected employees of the company.
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 to find Sarah’s and Mehmet’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 Caledoscope (2020/21 tax year)
Employee Residence Gross pay (£) Pay after income tax and
National Insurance (£) Average income tax rate (%)
Janet England 65,000 46,340.00 20.77
Sarah Scotland 65,000
Avi England 36,000 28,120.00 13.06
Alan Scotland 36,000 28,032.43 13.30
Mehmet England 21,000
Jan Scotland 21,000 17,940.85 8.00
1.3 Avi’s line manager has agreed that Avi’s net pay will increase to £30,000 three years later (in 2023/24). Over these three years, inflation is predicted to average 3% per year.
Using the Inflation calculator, select and report the relevant result from your calculation to help you explain whether in 2023/24 Avi is likely to enjoy a standard of living that is higher, lower or the same as today.
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