The Salary Calculator

What would a 30% flat tax be like?

by Admin

Earlier this month, the 2020 Tax Commission published a report promoting replacement of our current income tax system, which has varying rates of tax (from 20% to 50%) and National Insurance (typically 12% and 2%), with a simpler system which has a single flat tax at a rate of 30%. They also recommended raising the personal allowance (the amount you can earn tax-free) to £10,000 per year, from its current £8,105.

I thought it would be interesting to see how this plan, if implemented, would affect us when we get paid each month. The following chart compares the April 2012 tax rates in blue with the simplified version in red:

As you can see, under this proposal everyone who currently pays tax on employment would take home more money each month, as the total amount due would be less. The 2020 Tax Commission say that as part of this plan, schemes that currently allow people to take income through a business, avoiding National Insurance, would be removed. This might mean that people who are using such schemes to avoid tax at the moment would pay more under the proposal.

But, as you’ve probably realised, if (almost) everyone is paying less tax, that means the Government will get less money. This is indeed true – the gap between the two lines on the chart represents how much less the Government would get each year – and the commission also recommend abolishing inheritance tax and similar taxes, which would further reduce Government income. This would mean further cuts in public spending – which would be difficult to swallow at the moment. More reaction on the report is in this useful BBC article.

Tags: 2020 Tax Commission, 30% tax, April 2012, Economy, income tax, national insurance, Pay As You Earn, personal allowance, tax rates

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

2012 Budget approaches

by Admin

Next week, Chancellor George Osborne will give his budget speech, announcing his plans for taxation and spending for the next 12 months. In the 2012 budget, he is expected to announce measures to help business growth in Britain, such as easier or lower-cost business loans. There will also be plans to increase some taxes, but likely only on the wealthiest in the country. How well this is likely to go down with traditional Tory voters remains to be seen.

All of us will be affected by changes to income tax and National Insurance following his budget speech – as reported in a previous blog post, The Salary Calculator has been updated with the latest budget information to show you how your take home pay will change next month. Get started with The Salary Calculator for the April 2012 budget.

Tags: April 2012, Economy, HMRC, income tax, national insurance, tax rates, The Salary Calculator

Why under employment bumps up insurance costs

by Admin

[Guest Post]

Unemployment in the UK has edged closer to the three million mark, and is at its highest level since 1996. As well as not having a regular source of income, unemployed drivers are more likely to be hit by higher payments for car insurance. Motorists who are out work are being advised to shop around for better deals on websites such as moneysupermarket.

An investigation carried out by the BBC revealed that car owners without a job are, on average, paying around 30% more for their insurance than motorists with full-time jobs, while their premiums are potentially 63% higher. There are a few reasons why unemployed drivers are seen as risky by some insurers.

Peter Harrison, an expert on motor insurance from MoneySupermarket explained why: “This is partly because unemployed people are more likely to use their cars during the day and to drive up and down unfamiliar routes to a job interview. Also, some insurers perceive a drop in financial security as a result of losing a job means someone in that situation is more likely to make a claim, hence the rise in the price of premiums”.

When out of work, your car is vital in helping you find a new job, but the impact of losing income means you might struggle to keep up with payments on credit cards and mortgages, which could hit your credit rating. A poor credit rating could also impact upon the price of car insurance. This is why it pays to look for the best deal possible.

With the help of a price comparison site like MoneySupermarket, you can find a car insurance deal which can save you much-needed cash, but there are other ways to help you keep the cost down at a time when you need to tighten your belt. Getting a new quote could save money, as it could go down every year (£2.4bn is wasted by motorists by accepting renewal quotes). Adding someone with more driving experience to your policy could also drive the cost down.

Reducing your mileage could prove helpful. As well as saving on fuel costs, your insurer could take notice and slash the cost of your policy. Keeping in touch with the insurer about your current circumstances is also a good way to save money. Telling them about losing your job as soon as possible is important, as failing to do so could invalidate your insurance.

Tags: car insurance, Economy, guest post, Insurance, unemployment

Visualisation of large financial numbers

by Admin

The well-known web comic xkcd has created a very detailed visualisation of what the large financial numbers, like millions and billions, actually mean. It’s sometimes difficult to comprehend exactly what it means when newsreaders mention a debt of £1 billion.

This visualisation is rather US-centric, but much of the information displayed is valuable for those of us on this side of the Atlantic. It starts with individual dollars, then compounds them to thousands (shrinking the scale). Continuing on to millions, billions and finally trillions, it gives a clear indication of just how much money we’re talking about. Check out the diagram here: http://xkcd.com/980/huge/ (you will need to zoom in!).

Tags: billions, dollar, economics, Economy, GDP, millions, trillions