Functional Skills Maths · England
Plan a budget, compare costs, work out simple interest on savings and loans, and — at Level 2 — calculate compound interest, depreciation and basic income tax.
Learn
A budget compares income with outgoings over the same period. Add up everything coming in, add up everything going out, and subtract. If the answer is positive you have money left; if it is negative you are overspending. The most common error is mixing periods — a weekly wage against monthly bills. Convert everything to the same period first: multiply weekly amounts by 52 and divide by 12 for a monthly figure, or divide an annual bill by 12 to find what to put aside each month.
Comparing payment options is a budgeting skill too. A £348 annual gym membership against £32 a month: 12 × £32 = £384, so paying annually saves £36 — provided you will use it all year.
Simple interest is worked out on the original amount only, and the same amount is added each year. Interest per year = amount × rate. £2,000 at 3% earns £60 a year, so over 4 years it earns £240 and the balance becomes £2,240. In the non-calculator section, find 1% or 10% first and build up.
Most real savings accounts and loans use compound interest: each year's interest is added to the balance, and next year's interest is worked out on the new, bigger total. The quick method uses a multiplier. For 4% a year, multiply by 1.04 once for each year. £5,000 for 3 years becomes £5,000 × 1.04 × 1.04 × 1.04 = £5,624.32. On a calculator you can use the power key: 5000 × 1.04³.
Depreciation is the same idea in reverse. A car losing 15% of its value each year keeps 85%, so multiply by 0.85 for each year. Compound interest on debt, such as an unpaid credit card balance, grows in exactly the same way — which is why it can build up quickly.
In England, most employees can earn a tax-free Personal Allowance before income tax starts. At the time of writing this is £12,570 a year, and the basic rate of 20% applies to taxable income above it up to £50,270. Rates and thresholds can change, and Scotland has its own bands, so exam questions will give you the figures to use — use those, not what you remember.
The method is the same whatever the figures: subtract the allowance from the salary to find taxable income, then apply the rate. For a £30,000 salary, £30,000 − £12,570 = £17,430 taxable, and 20% of that is £3,486 a year. National Insurance is a separate deduction worked out in a similar way.
At Level 1 you will typically handle budgets, costs, and simple interest. Level 2 adds compound interest, percentage-based tax, depreciation and more complex budgeting.
Worked example 1
Answer: £240 interest; balance £2,240.00
Worked example 2
Answer: £340.00
Worked example 3
Answer: £5,624.32
Worked example 4
Answer: £3,486.00 a year
Watch out
Real life
Try it
Functional Skills Maths · Level 1
Show your working. Give money to the nearest penny and include units in every answer.
Questions
Simple interest is always worked out on the original amount. Compound interest is worked out on the growing balance, so the interest earns interest too.
Exam questions normally give you the allowance and rates to use. Always use the figures in the question.
Multiply by the multiplier once for each year, writing down each year's balance as you go.
Compound interest is typically a Level 2 skill. Level 1 usually covers simple interest and everyday budgeting. Check your awarding body's specification.
Last reviewed: 9 October 2026
Editor: Paul Smeaton CMgr FCMI