The Salary Calculator

Pension contributions on The Salary Calculator

by Admin

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

Pro-rata calculations

by Admin

Recently, I’ve had a couple of requests from users of the site to have a pro-rata calculator on the site, so you can work out what your new pay would be if you go down to reduced hours or enter a job share of some sort. Unfortunately, I’ve not had time to make this new tool, but it is easy to use the existing calculator to work out your pro-rata pay.

For example, if you are working 20 hours a week instead of 37.5:

1. If you know the hourly rate for the job, use the Hourly Rate Calculator, enter that rate and 20 hours – the calculator will show you the take home pay.
2. If you just know the annual salary for 37.5 hours a week, first divide the salary by 37.5, then multiply it by 20. Enter this new salary into the normal calculator and it should give you the right information.

According to HMRC, tax, NI etc are all worked out the same whether you worked 37.5 hours to earn the money, or just 20 (or 1!). The above tricks can show you what you need to know until I have time to create a pro-rata calculator.

Tags: HMRC, income tax, pro-rata, tax rates, The Salary Calculator

Plans for The Salary Calculator to include pensions

by Admin

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

New, higher tax rate

by Admin

From April 2010, new tax rates will take effect. Most of us won’t be affected by the changes, as they only affect those with annual income in excess of £100,000.

The first change is the creation of a new income tax band for taxable income above £150,000, which will be taxed at a rate of 50%. This will make a significant difference to anyone who does earn this much as they currently are paying only 40% on this income.

The second change is a reduction of the personal allowance of £1 for every £2 your income is over £100,000. Your personal allowance is the amount you are allowed to earn without paying tax – by reducing this allowance the government are able to take more tax off your hands. In fact, I have calculated that whereas currently for every extra £2 you earn over £100,000 you take home £1.20, those of you lucky enough to be in this pay bracket will be taking home only £0.80 of that £2 from April 2010.

The Salary Calculator will be updated with these new rates early in 2010 when the details of personal allowances and other thresholds for that tax year are made available.

More details are available on the HMRC website here (PDF).

Tags: 50% tax, April 2010, HMRC, income tax, Income Tax, Pay As You Earn, personal allowance, tax rates