tax rates
Visualisation of salary deductions
Following the update of The Salary Calculator to April 2012 tax rates, I thought it might be interesting to see how the proportion of your salary eaten up by income tax and National Insurance changes as you earn more money. If you earn less than £8,105 you pay no tax and less than £7,605 you pay no National Insurance. But those earning more than £150,000 per year will be losing nearly half their income to the tax man. I created the following chart showing how your take-home pay increases as your salary increases from £0 to £200,000:
Click the image for a larger, interactive version
Take home is in blue – the red section on top is the tax you pay, and the yellow section on top of that is National Insurance. For those of you paying off your student loan, here is a version with those deductions on top, in green:
Click the image for a larger, interactive version
So you can see that as your salary goes up, your take-home pay (the blue line) always increases… but the higher your salary is, the slower your take-home pay increases with each pay rise, as more of it is going to the government.
April 2012 Update
The Salary Calculator has been updated with the latest tax information which takes effect from 6th April 2012.
This year, the standard personal allowance (the amount you are allowed to earn each year tax-free) has been increased from £7,475 to £8,105 which will mean that most of us will pay less tax. However, for higher earners, the threshold of taxable income for the 40% tax rate has been lowered from £35,000 to £34,370 – which will reduce the improvement from the increased personal allowance (although you should still be better off!). The National Insurance thresholds have also increased slightly, which all goes towards helping you bring more money home each month.
For those paying into pension schemes through their employer there is a change which may affect the amount of National Insurance you pay. Firstly, the NI rebate on “contracted-out” salary related schemes has reduced from 1.6% to 1.4% – which will mean you pay a little more National Insurance than in 2011. However, those paying into a money-purchase pension scheme will find that from April 2012 this is no longer considered “contracted-out”, so you will get no rebate at all. You can see what a difference this will make by un-ticking the “Contracted out” option on The Salary Calculator. More information is available in this goverment document explaining the change [PDF].
Head over to The Salary Calculator to see what a difference this will make to your pay packet next month – there’s even a comparison utility which shows a breakdown of the difference between 2011 and 2012.
You can read more about the April 2012 tax and NI rates on The Salary Calculator’s about page, or these useful pages from HMRC:
Raising the personal allowance
The personal allowance is the amount of money you are allowed to earn each year before you start paying income tax. As mentioned in a recent BBC article, Nick Clegg and the Liberal Democrats made an election pledge to raise the personal allowance to £10,000 (at the time of the election, the personal allowance was £6,475). As part of the coalition government the Conservatives and the Lib Dems agreed to make this increase before 2015, and last year the threshold was increased by £1,000 to £7,475 – although, as I reported at the time, the threshold for 40% tax was lowered at the same time so that those earning more would start paying 40% tax sooner.
This April, the standard allowance for the under-65s is set to increase again, this time to £8,105. This is less of an increase than last year (a change only of £630) but it will still make a significant difference to those on lower incomes. Nick Clegg is pushing for the threshold to be raised quicker than that, but the Conservatives are resisting it for now – the main reason for this being that the lost tax would have to be paid for elsewhere. This could mean either increasing other taxes or making further cuts.
The personal allowance is affected by your tax code, which means you may not receive the standard tax-free amount. More information about tax codes in this blog post.
The Salary Calculator will be updated in early Spring with the tax thresholds and rates for April 2012.
Bonus payments added!
As requested by a large number of visitors to the site, The Salary Calculator has been updated to allow you to enter bonus payments. If you might earn a bonus from your employer one month, you can now use the calculator to see what kind of a difference it will make to your payslip that month.
Bonuses are typically paid as a one-off extra on top of your usual salary. Your employer will work out what extra deductions (tax, National Insurance and Student Loan) will be required that tax year because of this extra payment, and will add these on top of your usual deductions for that month. Yes, this unfortunately means that you’ll pay a lot of tax, NI and Student Loan that month (boo!) – but some of your bonus will be left for you to enjoy!
For the purposes of displaying the information The Salary Calculator assumes that your salary is normally paid monthly, and shows you what a bonus month would look like compared to a normal month. Similar calculations will be done by your employer if you are paid weekly. To get started, click here to check out The Salary Calculator with bonus payments.
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:
Categories
Tags
-
50% tax
April 2010
April 2011
April 2012
banks
books
careers
consumer electronics
debt
dollar
economics
Economy
election
electronics
euro
Foreign Currency
foreign exchange rates
HMRC
holiday
holiday money
house prices
houses
Income Tax
income tax
job hunting
Jobs
Loans
Mortgages
national insurance
Pay As You Earn
pension
Pensions
personal allowance
pound
pro-rata
recession
recovery
tax rates
The Salary Calculator
training
unemployment
united states
us
VAT
yen
Sponsored Links
Archive
- May 2012
- April 2012
- March 2012
- February 2012
- January 2012
- December 2011
- October 2011
- May 2011
- April 2011
- March 2011
- January 2011
- December 2010
- August 2010
- July 2010
- June 2010
- May 2010
- April 2010
- March 2010
- February 2010
- January 2010
- December 2009
- November 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009