Cost of Living Part 2

Learning Outcomes The main learning outcomes for this lesson are: To understand what you need to spend each month on basics (gas, electricity, rent). Learn how a student budgets and learn how to manage money at University. Gain an understanding of how different groups spend their money (e.g. a family of 4, a student, a pensioner, etc.). Learn what VAT stands for and why we have to pay it.

Starter You are living on your own and you are renting a flat in London. What bills will you have to pay every month? Get into pairs and make a list of all the items on the worksheet called Cost of Living – Living on your own.

Answers Rent Electricity Gas Water Waste Council tax Telephone Broadband TV licence Insurance

Activity Stay in the same pairs. You are now going to be given a group e.g. a pensioner, a family of 4, or a student. Each group will be given the following: Information on how much the group earn through wages. How much their bills are each month. How much they need to pay for food, clothes, etc. How much their mobile phone bill is. How much they put away for savings. How much they put a side for going out and having fun. You task is to work out how much money they will have left over each month after all the bills are paid. Do they have any money left over? What can they do if they do not have enough money to cover their bills? Put your answers on the worksheet provided called Cost of Living – Different Groups.

What is different about a student loan compared to a normal loan?

You have to be a student to get one. You don’t have to pay it back till you earn £21,000 or more a year. The monthly payments come out of your monthly salary before it even goes into your bank account so you don’t really know you’re paying it off. Your repayments may change depending on how much money you earn for example if you earn £21,000 you will pay about £7.50 a month but if your salary increases then so will your monthly repayments. They are not a fixed amount like a normal bank loan.

VAT What does VAT stand for?

VAT Value Added Tax

In pairs discuss… Does everyone have to pay VAT? Explain your answer Why do we have to pay VAT?

VAT Explained VAT is used by the government in the same way as income tax and corporation tax, they all go into the government’s account and the money is used to pay for different things that the country needs. VAT is a tax that is charged on most goods or services. There are some goods or services you don’t have to by VAT on though. VAT is also charged on goods and some services that are imported from other countries. VAT is charged when a VAT business sells goods to another business or a customer. If you are a business and are buying goods to sell you can generally reclaim the VAT that you have paid. There are generally three rates for VAT: Standard 20% Reduced 5% Zero 0% There are also some goods and services that are exempt from VAT or outside the UK VAT system.

Item that are VAT exempt Investments Several investment items and services are exempt from VAT taxation. These include purchased land, investment gold and insurance. Services Education, health, welfare, burial and cremation services are currently not taxed under VAT rules. Additionally, financial services such as banking or stock brokerage, fund raising events and services organized by charities and other qualifying organizations have VAT exemption. Cultural Exemptions Cultural services, such as museums and other cultural institutions are exempt from VAT. Individual works of art are also not taxable under VAT regulations. Sports, sports competitions, sports and physical education programs are exempt from VAT taxes. Tolls and Statutory Fees Other VAT-exempt services include tolls to use bridges, tunnels and roads operated by public authorities. Also exempt from VAT fees are government transportation testing and congestion charges for high-traffic transportation areas during peak hours (like in central London). Import and Export Products and services being exported to countries that do not operate under VAT do not receive a VAT tax. Some imported items are also exempt, depending on the country of origin or the item itself. Other Exemptions Trade union fees, professional organizations and associations; betting, gaming, lottery services and supplies are exempt from VAT taxation

VAT examples

Activity In pairs you must now find out what products are exempt in other countries. Make a list on a piece of paper. Start with the title ‘What products are exempt in other countries?’ You have 10 minutes!

Possible answers Malta Most products made for the disabled are VAT exempt. Items are evaluated on whether they can socially or educationally advance or ease the burdens of a disabled person. Every year, items are reviewed to determine suitability for VAT exemption. Among the exemptions are wheelchairs, shower seats and hand-control equipment for cars. Other products with VAT-exempt status include hearing aids, talking calculators for the blind and kitchen equipment, such as specialty spoons with extra long handles or special drinking cups with spill-proof lids. South Africa The National Revenue Fund defines what products or services are exempt from VAT. Some of these include financial services; goods donated not for gain (such as those in a thrift store); goods or services used for educational purposes, such as school computers; membership contributions to an employee organization (such as labor union dues); and rent paid on a house by the renter to the landlord. Australia The VAT in Australia is called the Goods and Services Tax (GST). The field of GST-exempt goods and services is very narrow, with strict and complicated criteria needed to achieve exempt status. For a not-for-profit organization, such as a charity or a government school, most goods and services are GST exempt. Examples of these include items sold in a thrift store and charitable bingo games. School products, including paper and computers, are also GST exempt. Medical aids and services that are GST exempt include heart monitors; communications aids for the disabled (voice output devices, page turners, alternative keyboards); home dialysis machines; hearing aids; and nebulizers for the breathing impaired. Basic foods are also considered exempt, among them eggs; fruits and vegetables; meat; bread; cheese; sugar; and infant formula. Mexico Included in goods and services exempt from VAT are the sale of land, books and building materials used for residential construction, according to Mexconnect. Other items include medical service fees, educational materials (such as school supplies), and the rental of residential property. There is also a zero percent tax rate on many items and services, meaning the amount paid for the item can be used as a credit against any VAT due on taxable goods. Food, goods for export and equipment rentals fall under this category. Japan The VAT in Japan is called the Consumption Tax (CT), The list of CT-exempt goods and services includes medical services; stamps; the sale of goods for export only; real estate sales; foreign currency transactions (buying and selling currencies); and interest payments received. Taken from the ehow website

Plenary 1.What bills do you have to pay each month? 2.What is the main differences between a student loan and a normal loan? 3.What does VAT stand for? 4.Why do we pay VAT?