The Salary Calculator

Employed and Self Employed

by Admin

The Salary Calculator attempts to show you your take home pay after tax, National Insurance, pension deductions and Student Loan repayments – based on the assumption that you are an employee, and your employer will be making these deductions from your payslip by Pay As You Earn (PAYE). However, if you are self employed, tax and National Insurance is calculated differently, and you have to tell HMRC about your income, and then pay them what you owe directly.

If you are both employed and self employed at the same time, or change from employment to self employment during the tax year, your tax liability can be quite complicated. Your employment income will have been taxed by your employer, but the amount of self employment tax and National Insurance you pay will be affected by how much you have already paid through normal employment.

A new sister site for The Salary Calculator has been launched to try to help in this situation. Simply called Employed and Self Employed, there is plenty of information available and links to details from HMRC. There is also a complex tax calculator which will try to estimate your tax liability based on the information you provide.

Tax and National Insurance details which take effect from 6th April 2012 are applied, although previous tax years from 2009 onwards are also available for calculations (including the current 2011 tax year). If you are interested in the figures involved, you can check out the details page which contains detailed information from HMRC.

Tags: Employed and Self Employed, income tax, national insurance, Pay As You Earn, self employed, tax rates, tax return

Budget 2012 update

by Admin

Today, the Chancellor gave his annual budget speech in the House of Commons, outlining government spending plans for the next couple of years. The details of income tax and National Insurance from 6th April 2012 had already been provided, so as I have explained in a previous post, The Salary Calculator is up to date with the latest tax information.

However, the Chancellor took the opportunity to outline plans for income tax from April 2013, and there will be a few changes. Firstly, the under-65 tax free allowance will be increased from April 2013 to £9,205,  in line with the coalition pledge to increase the tax-free personal allowance to £10,000 before the next election. This is an increase of £1,100 on the April 2012 value, saving those on low and middle incomes up to £220 per year. However, the increased personal allowances currently available to those over 65 will be frozen and, for those not yet receiving the increased allowances, replaced by a single allowance for all ages (although this change will not take immediate effect).

Another change in 2013 will be to reduce the top rate of income tax, paid by those earning over £150,000 per year, from 50% to 45%. The 50% rate was introduced by the Labour government, where previously such income would have been taxed at 40%. This will be popular with traditional Tory voters but Labour are complaining that the richest are getting tax cuts in this time of austerity.

The Salary Calculator will be updated with the April 2013 values nearer the time – in the meantime, you can see what the April 2012 changes will make to your pocket each month by checking The Salary Calculator 2012. There is also a comparison utility so you can easily see the difference between 2011 and 2012.

Tags: 50% tax, April 2012, April 2013, Economy, HMRC, income tax, national insurance, Pay As You Earn, personal allowance, tax rates, The Salary Calculator

Visualisation of salary deductions

by Admin

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:

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:

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.

Tags: April 2012, income tax, national insurance, Pay As You Earn, personal allowance, tax rates, The Salary Calculator

April 2012 Update

by Admin

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:

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

Tags: April 2012, HMRC, income tax, national insurance, Pay As You Earn, personal allowance, tax rates, The Salary Calculator

US tax can be complicated for same-sex couples

by Admin

I was in the USA recently and was interested to see an article in the newspaper USA Today reporting that same-sex couples sometimes face extra difficulties when it comes to paying their taxes. In the US, although there is an equivalent to PAYE (where your employer deducts your tax for you), almost all taxpayers complete a tax return detailing their income, allowable deductions, and the tax they should pay. This might be more or less than what your employer deducted, so you may have to pay the difference or request a refund.

The problem for same-sex couples occurs because of two details of the American tax / legal system. Firstly, married couples can file a joint tax return, rather than filing two separate returns. Filing a return can be a laborious process, and sometimes it is necessary to pay a tax consultant to complete it for you, so filing only one can save time and money. Sometimes, filing a joint return actually leads to less tax being owed, an obvious benefit. Secondly, same-sex marriage is not recognised by the federal government (i.e. the country) but is recognised by some states (e.g. Massachusetts). What this all adds up to is same-sex couples having to file different tax returns at the state and federal levels – a joint return for their state (if it allows them to submit joint returns) and separate returns for the federal government. This can cost couples more in tax consultant fees (as there are more forms to submit) and can cost them more in tax as they miss out on the tax benefits of being a married couple.

At the moment it doesn’t appear that this problem is going to go away – not soon, in any case. You can learn more about US Federal Income Tax on the US Salary Calculator.

Tags: Foreign Currency, holiday, income tax, united states, us, usa, USA tax