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1.9 F) Gross Pay, Net Pay, Taxes & Pension Contributions – Part 2

1.9 F) Gross Pay, Net Pay, Taxes & Pension Contributions – Part 2

The content in this section builds on the content in the previous section. Make sure that you have covered the content in the previous section before working through the content in this section (click here to be taken back to the previous section).

We are able to work out the percentage tax that someone pays by using the formula that is given below:

**Working Out the Tax Rate**We are able to work out the percentage tax that someone pays by using the formula that is given below:

This formula works providing that the tax rate is the same for all of the earnings (this is also known as the tax being flat or constant).

**Example 1**

My gross pay is £1,400 and I pay £490 tax. The rate of tax is the same for all of my earnings. What is the percentage tax that I pay?

We are able to find the percentage tax that I pay by subbing the values that we are given in the question into the formula above. We are told that that amount of tax that I pay is £490 and my gross pay is £1,400. We sub these numbers into the formula.

The rate of tax that I pay is 35%.

These types of questions are fairly straight forwards providing that you remember the formula. Therefore, it may be a good idea to write the formula down somewhere.

These types of questions are fairly straight forwards providing that you remember the formula. Therefore, it may be a good idea to write the formula down somewhere.

**Reverse Percentages**

The following questions in this section are going to look at reverse percentages. These are looked at in more detail in the percentage section (click here to be taken through to the reverse percentages content).

Reverse percentages are used when we are given a value for a certain percentage and asked to work out the value for what another percentage would be. There will be two different cases that we look at.

- One case will be where we are given the tax rate and the amount of tax that an individual pays. We will then be asked to work out their gross pay.
- The second case is where we are given an individual’s tax rate and net pay. We will then be asked to work out their gross pay.

We will be looking at one example of each of these cases.

**Example 2**

I pay £952 in tax and I pay a tax rate of 34%. What is my gross pay?

The first step in reverse percentage questions is to equate percentages to their value in the question. We are told in the question that I pay £952 in tax and the percentage tax that I pay is 34%. Therefore, we know that £952 is equal to 34%.

We want to find out my gross pay and my gross pay will be 100%. The easiest way to get from 34% to 100% is to find what 1% is and then find what 100% is. We find what 1% is from 34% by dividing by 34.

We find what 100% is from 1% by multiplying by 100.

From the above calculation, we can see that my gross pay is £2,800.

**Example 3**

My net pay is £1,763, and I pay 18% tax. What is my gross pay?

We are told that the net pay for this individual is £1,763. Currently, we do not know what percentage this represents. However, we do know that our individual pays 18% and we know that an individual’s net pay is found by taking tax off of gross pay. Gross pay is 100% and the tax percentage is 18%. Therefore, net pay represents 82%.

We can now equate my net pay to the percentage.

The question asks us to find the gross pay of the individual and gross pay represents 100%. The easiest way to go from 82% to 100%, is to find what 1% is and then multiply by 100 to get 100%.

We are able to find what 1% is from 82% by dividing by 82.

We are able to find what 1% is from 82% by dividing by 82.

The next step is to multiply by 100.

This calculation tells us that the gross pay for our individual is £2,150.