Pensions
2014 Budget
Later today, the Chancellor will deliver his 2014 Budget to parliament, setting out his plans for the next few years. The Budget is the Chancellor’s opportunity to explain his policies and how they will affect the economy as a whole, and also what differences will be felt by ordinary members of the public.
He is likely to make much of the fact that the tax-free personal allowance (how much you can earn without paying income tax) has increased to £10,000 from April 2014, a coalition pledge delivered 1 year early. There is also talk that he might announce plans to raise the threshold for 40% tax (the amount at which you start paying income tax at 40% rather than 20%) in future years. This would probably lower the tax paid by those in middle management positions, say, and those in more senior roles.
The income tax and National Insurance rates which will take effect from 6th April 2014 have already been applied to The Salary Calculator, so you can easily see how your take home pay will be affected by the new tax year. You can also view a side-by-side comparison of 2013 and 2014 so you can see where the differences come from.
None of the content on this website, including blog posts, comments, or responses to user comments, is offered as financial advice. Figures used are for illustrative purposes only.
Salary sacrifice and personal pensions
For many years, The Salary Calculator has allowed you to enter a percentage of your salary to be deducted as contributions to a pension. However, only employer (or occupational) pensions have been supported. Now, the calculator has been updated to allow you to specify whether your contributions are to an employer pension (as before), a salary sacrifice scheme, or a personal pension.
These three different types of pensions have different regulations applied to them, which means they affect your take-home pay in different ways. Your income tax, National Insurance contributions and even student loan deductions might be different depending on the type of pension scheme you are paying into. More information about the different pension types is on The Salary Calculator “About” page.
Choose the “Pension” tab on The Salary Calculator to see the new options and see how it affects your take-home pay!
Childcare Vouchers added!
The Salary Calculator has been updated with a new option for Childcare Vouchers. Some employers offer employees the opportunity to have some of their pay in the form of vouchers which can be exchanged with accredited childcare providers instead of cash. These vouchers can be taken tax-free, saving the employee money.
Childcare vouchers are subtracted from your salary before tax and National Insurance, like pension contributions. However, there is a limit to the amount that can be taken tax-free each year – for the current tax year, this amount is £2,915. You can receive childcare vouchers above this amount, but you will not get the tax benefits. If you signed up for the voucher scheme before 6th April 2011, this limit applies no matter how much you earn. However, if you joined the scheme after this date and pay tax above the 20% Basic Rate, the amount you can receive tax-free is reduced. For those paying 40% tax (typically earning £42,475 or more), the tax-free allowance for childcare vouchers is £1,484 – and for those paying 50% tax (earning over £150,000) it is just £1,166.
To see how childcare vouchers can affect your take-home pay, head over to The Salary Calculator and enter your salary, along with the value of vouchers you receive each month. If you joined the scheme before 6th April 2011, tick the box to this effect. Enter the rest of your details and click Go! to see the results.
New – graphical representation of salary deductions
To help you to visualise where your income deductions are going, and how much of your money you get to keep (take-home pay), I thought I would add some pie charts to The Salary Calculator. Now, when you have entered your details and are viewing the table of results, there is an option to see a graphical representation of that information:
Screenshot of the graphical representation link
Click on this link, and an overlay will pop up, to show you an interactive pie chart that clearly explains where your money goes each year:
Example pie chart of UK salary deduction breakdown
Of course, it will also show pension and student loan deductions if those apply to your calculations. To get started, head over to The Salary Calculator and enter your details. I hope you find this new tool useful – please use the comments section below to leave any feedback or suggestions for improvements.
Coalition pledges to affect tax
So we’ve got a new, coalition government and they have published the details of the agreements which were reached between the Conservative and Liberal Democrat parties. As you can see in the linked article, campaign pledges from both parties were included in the agreement, reflecting the compromises necessary.
They have promised that a new budget will be announced within 50 days, which will include changes to PAYE taking effect from April 2011. These changes will include increasing the income tax personal allowance to reduce taxes for low and middle earners (although not immediately the full increase to £10,000 the Lib Dems wanted), but the employee National Insurance threshold changes the Conservatives put in their manifesto will not be included. However Labour’s planned increase in employer National Insurance will not go ahead, pleasing Conservative supporters.
Full details will not be available until the promised emergency budget, but I promise to make available as soon as possible any relevant changes to The Salary Calculator!
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