The Salary Calculator

Although the UK entered recession as long ago as the second half of 2008 and officially exited recession at the end of 2009, a full recovery still seems a long way off. This week was one of mixed messages – some good and some bad.

First came the bad news that the Consumer Price Index (CPI) had increased from 4% to 4.5% in April. The CPI is used to measure inflation in the UK and to compare it with the government’s target of 2%. A low level of inflation (like 2%) is a sign of a healthy economy, but higher rates usually mean that the costs of goods and services are increasing faster than workers’ wages, leading to a lower standard of living. For those of us already finding it hard to make ends meet, this is obviously bad news.

On the flip side, however, there was news that unemployment fell in the first quarter of this year. The decrease was only slight, to 7.7% from 7.8% the previous quarter, but it is a promising sign – as is the fact that the number of people in employment has increased to 29.24 million, just short of the pre-recession peak of 29.57 million.

What does all of this mean? Well unfortunately, these numbers are just a small part of the complex system that makes up the British economy and predicting what will happen next is astonishingly difficult – as no doubt you’ve noticed in the past few years. However, it seems that the economy is continuing on its long, slow recovery from the greatest recession in living memory. The recovery appears to be fragile – which is one of the reasons that the Bank of England has left its base rate at 0.5% for the 26th month in a row. You know what they say – slow and steady wins the race!

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.

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:

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

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!

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!