April 2011 rates applied
The April 2011 tax and National Insurance rates have been applied to The Salary Calculator.
In comparison to last year, when rates for most of us were unchanged, there are a number of differences which will mean that your payslip will be different next month.
The standard personal allowance (the amount you can earn tax-free) is increasing by a thousand pounds to £7,475, but this is mitigated in some way for higher earners by the threshold for 40% tax being lowered to £35,000. Similarly, NI rates increased by one penny in the pound (to 12% and 2%) but the threshold for paying NI increased so lower earners may not be too badly affected.
To see how you’re affected, try out The Salary Calculator with your salary. The details of the figures used by The Salary Calculator are available on the About page.
Useful links:
Tax codes added to The Salary Calculator
After a great many requests from users of the site, I’ve finally added support for tax codes to The Salary Calculator. If you know what your tax code is, you can now use it on the take home pay calculator, hourly wage calculator and the required salary calculator to get a more accurate indication of your take home pay.
Tax codes exist because in some circumstances HMRC may adjust your personal allowance, often because of benefits like a company car or private healthcare. They do this by providing your employer with a tax code which indicates what your personal allowance should be.
The usual effect of such an adjustment would be to lower your personal allowance, meaning that you pay tax on more of your income. If you receive benefits such as private healthcare or a company car through your employer, you pay more tax on your salary so that the value of these benefits is also taxed.
Tax codes usually indicate the personal allowance by including a number which should be multiplied by 10 and have £5 added to it to make the personal allowance – e.g. the standard code 647L indicates a personal allowance of £6,475.
- L, P, Y and T codes indicate the personal allowance to be assigned as described above
- K codes indicate the amount by which the taxable income should be increased, if you owe tax on other earnings which should have been taxed
- A BR code indicates you pay 20% basic rate tax on all income
- A D0 code indicates you pay 40% tax on all income
- An NT code indicates you pay no tax
In most cases your tax code will stay the same if you change jobs, so now you can use The Salary Calculator to get a more accurate indication of what a pay rise or a new job would mean to you each month!
Student Loan over-repayment
As you might have heard on the news or read in this article, £15 million has been overpaid this year by former students repaying their student loan – because the repayments have continued to be taken even after the full amount of the loan has been paid back.
The problem occurs because although the Student Loans Company (SLC) has informed your employer through HMRC that you should have student loan deducted from your payslip each month, the SLC doesn’t know how much is being repaid until the end of the tax year when your employer files its tax return. As you’ll see on the About page of The Salary Calculator, student loans are repaid at a fixed rate of 9% of anything you earn over £15,000 – no matter how large (or small) the balance of the loan. If you are close to repaying the total of your loan, deductions may continue for some time until the SLC realise that you have overpaid – and even then, they have to communicate to HMRC who then pass the “stop” message on to your employer.
There are things you can do to help prevent overpayment, however. The Student Loan Repayment Portal (which appears currently to be unavailable) will show the last known balance of your account, and allows you to enter information from your payslips to estimate how much is outstanding. If you are close to repaying the full amount, you can contact the SLC directly and pay off the remaining balance by debit card over the phone. When you do this you will need to make sure that the stop notice makes its way from the SLC through HMRC to your employer – if not, you will find the deductions continue to be taken even though you have repaid the loan. You may be able to get the SLC to fax confirmation of the stop directly to your employer, making sure it arrives in time for your next payslip – if you speak to the SLC about repaying your loan, you can ask them about this and discuss it with your employer.
Alternatively, you can arrange for your remaining balance to be taken by Direct Debit rather than by PAYE deduction – meaning that when the balance has been repaid in full, the debits stop automatically. Again, the SLC need to send a “stop” note to HMRC and your employer, but this happens before the amount is repaid and therefore if something goes wrong you are less likely to be trying to get a refund.
If you are repaying your student loan and you think this may apply to you, check out the Repayment Portal I linked to above and see how much is still outstanding on your loan. I repaid my loan earlier this year and I can tell you it is a good feeling!
20% VAT from 4th January 2011
As you are probably aware, in June this year the Chancellor announced in his emergency budget that VAT (Value Added Tax) would increase from 17.5% to 20% from the 4th January 2011. This will mean a small increase in the cost of most goods and services, as suppliers will have to increase the price they charge to cover the extra VAT they are having to pay to the Government.
Although a lot of people wait until the January sales before making a large purchase, in some cases you might find that it’s worthwhile to buy before the end of the year so that you only pay the lower 17.5% VAT. However, bear in mind that the amount of VAT increase is only small (a little over 2%) compared to the kind of discounts often offered in January sales.
For large purchases, such as a new car, the VAT increase could lead to a significant increase in price so it is worth checking what the VAT increase means for you. Fortunately, over at our sister site The VAT Calculator we have created a simple tool that shows you how much more something will cost if you buy it after the VAT increase. Just enter the current cost (including VAT) and see what the cost changes to with 20% VAT – try out the 20% VAT comparison calculator.
You can learn more about VAT by reading the information here.
The Logic of Life
A little over a year ago, I recommended Tim Harford’s The Undercover Economist. Now, I can also recommend his latest book, The Logic of Life, to anyone who wants to understand how economic “rational” thinking affects all of us every day.
In The Logic of Life, Tim explains how all of us act rationally (that is, with reasoned self-interest) every day, even in some situations where we think we are acting purely emotionally or altruistically. He demonstrates that some actions which appear to be irrational (like government subsidies that benefit only a few special-interest groups but increase tax for many other voters – surely the government would try to please the most voters?) are actually rational. He doesn’t argue that every decision we make is completely rational, just very many of those that we don’t even spend time thinking about.
My favourite part is where he gives several reasons why your boss is overpaid – something we’ve all wondered in the past, and it’s both reassuring and disconcerting to learn that there might be a legitimate reason for it. More disconcerting is the chapter explaining that racism can be rational – and demonstrating that while rationality may be more prevalent than we expect, it is not always to be applauded.
If you’d like to get some insight into a few of life’s little mysteries, click on the link to the right to buy the book. You’ll be helping to support this website and you might just learn something!
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