TMA 02 | Taxation and provisions.

RUNNING HEAD: - Taxation and provisions 0 | P a g e
TMA 02

Taxation and provisions 1 | P a g e
Contents
Part A........................................................................................................................... 2
Answer to question no. – 1.............................................................................................. 2
Answer to question no. – 2.............................................................................................. 6
Answer to question no. – 3............................................................................................ 10
Part B......................................................................................................................... 14
Introduction.............................................................................................................. 14
Unsecured Debt.......................................................................................................... 15
Different types of unsecured borrowing:........................................................................... 15
Factors which may have contributed to the level of unsecured household debt:............................16
Part C......................................................................................................................... 17
Team Work:.............................................................................................................. 17
References............................................................................................................... 19
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Part A
Answer to question no. – 1
1.1 Angela’s and Neil’s pay after income tax and national insurance have been deducted, and
average total tax rate for each of them are calculated using the Income tax and national insurance
calculator which is as under:
Table 1 Pay structure at Crossdigital Ltd (2019/20 tax year)
Employe
e Residence Gross pay
(£)
Pay after income tax and
National Insurance (£)
Average
total tax
rate (%)
Marginal
total tax
rate (%)
Angela Scotland 62,000
£
42,831.79 30.92% 43%
Neil England 21,000
£
17,815.84 15.16% 32%
Angela’s pay after income tax and national insurance is calculated as under:
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Neil’s pay after income tax and national insurance is calculated as under:
1.2 Progressive tax system:
Progressive tax system is the system of taxation in which income tax rate increases as the taxable
amount increases. In progressive tax system people with lower income pay a lower percentage of
that income in tax than do those with higher income.
That means it imposes higher tax rate on high-income earners and takes a larger percentage of
their income than it does from low-earners, based on the concept that high-income taxpayers can
afford to pay at a higher rate (Saez, & Zucman, 2019).
There are advantages and disadvantages of the Progressive tax system, some of them can be
summarized as under –
 This system of taxation shifts the tax burden to those taxpayers which are most the able to pay,
 Governments get good amount of revenue due to this system as it promotes the lower and middle
class taxpayers to pay tax, which increases the tax base; and gets more revenue from high
income taxpayers.
 However, Progressive tax system may reduce the private capital flow to the market and impact
the economy.
 This system has the scope of manipulations and tax evasion cases may increase, further it
decreases the marginal utility of money for an individual.
Progressive tax system is often suggested to curb the income inequality in society by taxing the
higher income persons with a higher rate.
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Identification from the data of Table 1 – England or Scotland, which income tax and National
Insurance System is the most progressive (Saez, & Zucman, 2019).
Employe
e Residence Gross
pay (£)
Pay after income tax
and National Insurance
(£)
Average
total tax
rate (%)
Marginal
total tax rate
(%)
Bobo England 62,000
£
44,495.84 28.23% 42%
Angela Scotland 62,000
£
42,831.79 30.92% 43%
Gavin England 36,000
£
28,015.84 22.18% 32%
Dora Scotland 36,000
£
27,925.79 22.43% 33%
Neil England 21,000
£
17,815.84 15.16% 32%
Ashley Scotland 21,000
£
17,836.34 15.07% 32%
Based on the above data, it can be identified that the Income tax and National insurance system
of Scotland is more progressive than the same of England (Saez, & Zucman, 2019).
A tax system would be termed as more progressive than another one if its tax rate progresses low
to high rapidly with taxable amount increasing.
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It can be observed from the above table that with the income increasing from £21000 to £36000,
average and marginal tax rates of Scotland progresses more than that of England. Further, tax
rate progresses again for employees with the gross annual salary of £62000, and employee
residing in Scotland pays tax at a higher average rate than the employee residing in England and
gap is wider at this higher income slab.
1.3 Median value of the gross earnings of the company’s employees in today’s money:
Median salary is the center of a range of employee’s salary arranged in order from least to
greatest.
Median gross earnings of the employees of Crossdigital Ltd is as follows-
Total number of employees: 6.
Average of 3rd and 4th amount in arranged range of data: £ 36.000.
In case of even number of employees, to calculate median salary, average of earnings is required
of the two middle employees arranged in least to greatest order on the basis of pay.
In case of Crossdigital Ltd, Average of 3rd and 4th earning data arranged accordingly, would be
the median gross pay i.e. £36,000 per annum.
1.4 Considering the inflation rate at 3%, to maintain a same standard of living after 3 years, Dora
would need her earnings equal to as calculated below (Kirchler, & Hoelzl, 2018).
As per above inflation calculation, Dora would need to get a pay not less than £30,515.26 so that
she could afford a standard of living same as today (Ron Balsera, Klees, & Archer, 2018).
As per available data, Dora’s pay in 2022/23 after income tax and national insurance would rise
to £29,881, with this pay Dora could not maintain the purchasing power of £27,925.79 as that
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