The Salary Calculator

New – Job Support Scheme added

by Admin

Note: An earlier version of this post contained old percentages – the post was updated (on 22nd October 2020) to reflect new percentages

From 1st November 2020, the furlough scheme introduced by Chancellor Rishi Sunak is being replaced by the Job Support Scheme. This scheme is designed to encourage employers to bring employees back to work part time if possible. The Salary Calculator has been updated to allow you to estimate what effect this will have on your take home pay.

If you work 20% or more of your normal full time hours, some of your “missing” pay for the hours not worked is subsidised by the government. Your employer will pay 5% of the unworked hours, the government will pay 62% of the unworked hours, and the remaining third of unworked hours is unpaid. This does require your employer to pay you for work you are not doing, but the plan is to help people get back to work rather than losing their jobs. If you work a third of your hours, you will receive 77% of your normal pay – slightly below the 80% offered by the furlough scheme. The government contribution is capped at £1,541.75 per month.

To see what effect this might have on your take home pay, check out the Pro Rata Salary Calculator – you can either enter reduced weekly hours, or a percentage of your full time hours – just remember to tick the “Job Support Scheme” box to see what a difference it will make.

Tags: coronavirus, covid-19, income tax, job support scheme, Jobs, national insurance, Pay As You Earn, The Salary Calculator, unemployment

New – Maternity and Paternity pay calculations

by Admin

You may remember that a short while ago, I added a calculator for sick pay and unpaid leave. It was natural for me to consider the effects of maternity / paternity pay, too, as this can have a similar effect on your take-home pay – and Statutory Maternity Pay and Statutory Sick Pay are calculated in quite similar ways. I have now added this option to the maternity pay salary calculator.

You will notice that this is the same calculator – the Sick Pay Calculator has been expanded to include statutory parental pay as an option. If you will be taking some maternity or paternity leave, you can estimate the effect on your payslip by entering the details of your salary, days per week that you work, and how many days in the pay period you will be taking as leave. If your employer offers some of your leave at full pay then you don’t need to enter these days. If you are receiving some leave at 90% pay (you are normally entitled to this for the first 6 weeks of maternity leave) then use the % pay fields to handle those days. And for any days in the pay period that you will be receiving Statutory Maternity (or Paternity) Pay, currently £151.20 per week, use the Statutory Parental Leave field.

Important note! All calculations provided are estimates and indicative only. Different employers have different leave policies (for sick pay and for parental pay), they also calculate leave in different ways. You may not be entitled to statutory pay. The calculator does not know what you are entitled to, only what you have entered. If you are paid monthly, or have an irregular work schedule, Statutory Pay can fluctuate from pay period to pay period, which the calculator does not allow for. More information about maternity pay is available from Gov.UK.

Tags: HMRC, income tax, maternity pay, national insurance, parental leave, paternity pay, Pay As You Earn, sick pay, SMP, SSP, statutory maternity pay, statutory pay, statutory sick pay, The Salary Calculator

Should you defer your second payment on account?

by Admin

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If you are self-employed, or have additional income on top of your salary from things such as a buy-to-let property, you need to complete a Self Assessment tax return each year, and then pay HMRC any additional tax due. If all of your income comes from employment and you pay your taxes through PAYE (Pay As You Earn) then you do not need to complete a tax return and the following does not apply to you.

For those that are new to the Self Assessment tax return process, payments on account are one of the most common stumbling blocks. Despite being introduced as an initiative to help taxpayers spread their tax payments, it often results in annual frustration and can actually harm your cash flow if you’re caught unaware.

That’s why, in response to the COVID-19 pandemic, HMRC announced that they would allow taxpayers to defer their second payment on account (that would have normally been due on 31^st July 2020). It is hoped that this gives taxpayers the chance to prepare. But is that the right course of action? We’ve brought in Mike Parkes from GoSimpleTax to set the record straight.

What is a payment on account?

Payments on account are advance payments towards your next tax bill. They’re calculated based on the amount that you paid the previous year.

HMRC splits this amount into two, and places the deadline for payment six months apart from one another. For the 2019/20 tax year, the first was due by midnight on 31^st January 2020, and the second would normally be made by midnight on the 31^st July 2020.

This latter payment is what can now be deferred, as long as it is eventually paid by the 31^st January 2021.

If you had a £5,000 tax bill for the 2018/19 tax year, for instance, you would need to make two £2,500 payments on account towards your 2019/20 tax bill.

But if your 2018/19 Self Assessment bill was less than £1,000 or if over 80% was deducted at source (such as employment), then you will not need to make a payment on account – you would simply need to pay any outstanding tax by the 31^st January.

What are your options?

If you are required to make payments on account, you will still need to pay your second one. Although, as HMRC has offered taxpayers the opportunity to delay this, you can choose to make your second payment as late as the 31^st January 2021, alongside the submission of your Self Assessment tax return.

HMRC will not charge any interest or penalties should you choose to do this. However, by delaying your second payment to January, you do run the risk of having to fulfil all your tax responsibilities at once. This could result in you having insufficient funds in place to cover all your tax liabilities.

Your therefore have three options:

Pay in accordance with the original July deadline

If you can afford to pay your tax bill as you would do normally, you should do. If anything, it creates a sense of ‘business as usual’ in an otherwise tumultuous time.

I appreciate that, for many, paying in July will harm their cash flow. However, it is my view that clearing debt where possible is more sustainable and allows January to mark the start of a new financial year – and a fresh start.

Reassess and reduce liability

If you’re doubtful that you can afford a second payment on account right now, calculate your 2019/20 tax liability before the 31^st July 2020. This will confirm the actual amount to be paid in July 2020, January 2021 and July 2021, and give you clarity. To do this, you need to file your 2019/20 Self Assessment tax return early.

Filing early won’t mean that you have to pay your tax bill early, after all – but it does allow you to determine what your total tax bill will be ahead of time. From here, you can consider two key points:

1. Does the July 2020 payment on account need to be deferred?
2. Do the January 2021 and July 2021 payments on account (for the 2020/21 tax year) need reducing to reflect the impact that COVID-19 has had on them?

Defer to later in the year

Of course, there will be some cases that are unable or unwilling to pay anything towards their tax bill in July now that they can defer. In this instance, it’s important that they are reminded of the Self Assessment late penalties should they wish to push this all the way back to 31^st January and be unable to make payment at that time.

Deferring could have an impact on cash flow in 2020/21. If you are also VAT-registered and have deferred your VAT payment, then it is worth noting that this also needs to be paid by 31^st March 2021.

Ultimately, it falls to you to make the decision that best suits you. However, it is my view that, by planning your 2021/22 payments now, you will be in a much safer position.

About GoSimpleTax

With GoSimpleTax, you can get a clear picture of your obligations. All your income and expenses can be logged in an easy-to-understand format, and their software will highlight areas where you can potentially reduce your tax liability through tax relief.

Register for their free trial today and stay abreast of all the latest tax changes. When you’re ready to file your Self Assessment tax return, upgrade to their full service and submit straight to HMRC.

Tags: Employed and Self Employed, HMRC, income tax, Pay As You Earn, Self Assessment, self employed, VAT

Receiving a pension AND employment income

by Admin

The Salary Calculator has had the Two Jobs calculator for a little over a year now. I have had a couple of people contact me and say that they haven’t been able to use it for their situation, which is that they are receiving one income as a pension but they have a second income from a job. The pension doesn’t have National Insurance deducted from it but the job does, and it wasn’t possible to reflect this in the calculator. However, this oversight has now been fixed!

On the Two Jobs calculator, the Additional Options tab now has two extra tick-boxes which you can use to indicate that either the first or second job is a pension (or indeed that they are both pensions). The calculator will then not deduct NI from the job that you say is actually a pension. On all other calculators, where you are only dealing with one income, you can just tick the “I do not pay National Insurance” box if this actually a pension.

Tags: Jobs, national insurance, Pay As You Earn, pension, Pensions, The Salary Calculator

Update to Salary Sacrifice options

by Admin

The Salary Calculator has had an option for “Salary Sacrifice” (where you give up some of your pay in return for some benefit like a cycle to work scheme) for some time. I have just made a small update to this tab because there are in fact two kinds of salary sacrifice – for most schemes, the sacrificed salary only reduces your National Insurance contributions, but a few schemes are tax-exempt and therefore also reduce the amount of income tax you pay. Now, you will see that there are two options on the Salary Sacrifice tab – one for NI only sacrifice and one for tax-exempt sacrifice.

If you take part in one of these schemes, enter the amount you sacrifice and whether that is monthly, weekly or yearly into the option that applies to your scheme. If you are not sure, check the details of your scheme or ask your employer (or compare the results of the calculations with your payslip). If you are a member of multiple schemes you can put the total sacrifice in the relevant option, and if you are a member of some NI only schemes and some tax-exempt ones you can put the relevant values in each option.

n.b. For salary sacrifice pensions and childcare vouchers you should continue to use the dedicated Pension and Childcare Voucher tabs, because the calculations are slightly different.

If you’d like to try it out, head on over to The Salary Calculator!

Tags: income tax, national insurance, Pay As You Earn, salary sacrifce, The Salary Calculator