The Salary Calculator

April 2010 rates applied

It’s that time of year again – The Salary Calculator has been updated with the latest tax information which takes effect from 6th April 2010.

As reported at the end of last year, for most people there’s actually no difference between the 2009 figures and the 2010 ones. Personal allowances are staying the same (whereas they usually go up), as are National Insurance payment thresholds.

However, there are some changes for those earning over £100,000 – personal allowances are reduced by £1 for every £2 your salary goes over £100,000, and there is a new 50% tax rate for taxable income over £150,000. So while most of the population will find their payslips unchanged come April, the highest earners will find themselves significantly worse off.

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:

• HMRC Income Tax info sheet
• HMRC National Insurance info sheet

Tags: 50% tax, April 2010, HMRC, income tax, Pay As You Earn, pension, Pensions, personal allowance, tax rates, The Salary Calculator

Liberal Democrats pledge to lower income tax

A reader has asked me about this campaign pledge from the Lib Dems, where they say they will increase the income tax personal allowance to £10,000 if they win the next election. They say this could mean an extra £700 a year for low- and middle-income voters.

Let’s look at the numbers and see if they are right. As you can see on The Salary Calculator “about” page, the current allowance is £6,475 for under-65s. Increasing this to £10k would give everyone an extra £3,525 untaxed, and for those in the 20% tax band this would be £705, matching what the Lib Dems claim.

However, they have to raise this extra money from somewhere – as you can see on their website they have listed some areas they might take the money from, including taking National Insurance on benefits in kind and second jobs. Also, they may lower the threshold between the 20% and 40% rates, meaning smaller savings for those in the higher bracket.

At first glance, those in the 40% tax bracket will save even more with this increase in personal allowance (up to £1,410!), but if the threshold were lowered this effect would be smaller, and as you can see on the Lib Dem website, they also talk about modifying tax relief so that pension contributions are only tax free on the 20% rate. As always, the devil is in the detail!

Needless to say, should they come to power The Salary Calculator will be updated when they make good on this campaign promise.

Tags: April 2010, election, income tax, Liberal Democrats, Pay As You Earn, pension, Pensions, personal allowance, tax rates, The Salary Calculator

Pension contributions on The Salary Calculator

As I wrote a short while ago, for a long time people have been emailing and requesting that The Salary Calculator offer support for pension contributions. My excuse had always been that pension contributions aren’t as simple as they might seem, but now I have finally tackled the problem.

Deductions made at source for a company pension or other pension scheme are typically a percentage of your salary, and any contributions you make to the pension are not taxed. The complication comes when employers calculate what is called “pensionable pay” – it is a percentage of this that is deducted each paycheck. As you can see in this related article about pensions, this is not necessarily just your annual salary – each employer calculates it differently.

Therefore, the pension deductions which have been added to The Salary Calculator are an estimate. They may match exactly what your employer does, but probably they will not. However, this is an improvement to the calculator in that it can give you a better indication of what your take home pay will be after pension contributions than it could before.

The approach I’ve taken is to take the percentage you enter into the pension field and deduct that percentage from the standard annual salary (i.e. not including any overtime). Therefore, the calculator is assuming that your pensionable pay is the same as your annual salary. If your employer calculates it differently I’m afraid that this estimate won’t be accurate, but it should give you a good indication. Sorry I couldn’t make it more accurate! Get started on The Salary Calculator with pension contributions.

Tags: income tax, Pay As You Earn, pension, Pensions, tax rates, The Salary Calculator

Plans for The Salary Calculator to include pensions

Almost since The Salary Calculator was first created, people have been asking for it to include pension contributions. Pension contributions are typically a percentage of your salary each month, and are deducted before tax. I’m afraid pensions have not yet been added to the website but I do plan to add them in the near future.

When I first tried to add them I found that the calculation was not as simple as I expected – the more I investigated, the more unpredictable it seemed to be. However, looking back, I think that a more simple approach can be taken to include pension contributions in the calculation, and help you see a more accurate calculation of the take home pay.

I’ll be working on this in the next few weeks and months, and if you check back on the blog regularly you’ll be the first to know when it’s released!

Tags: income tax, Pay As You Earn, Pensions, The Salary Calculator