Are YOUR wages passing inflation? Mine aren't!

[Saracen]

The poll should be renamed to
Does your wage increase mean anything considering the amount of tax you have to pay ?

My salary has gone up by 15k in the last 5 years but my monthly salary has gone up by only £300. Where's the rest ? Gone in income tax and NI !

Unless there's more to that than meets the eye, you need to check your taxes, because something doesn't add up.

At today's rates, and without other factors, if you get a £15k pay rise, then you'd pay roughly £6k in tax and keep £9k.

For instance, at £40k, you'd keep £30,154 and pay £9845 in combined Income Tax and NI.

At £55k, you'd keep £39041 and pay £15958 in combined IT and NI.

I.e. take-home up by £8887 and IT+NI up by £6113.

So if you're only better off by £300/month, or £3600/year, then unkess there's something extra going on, you're paying WAY over the top in the marginal rate.

Exact figures will, of course, vary depending on wgat your pay was, and now is, and how much of that £15k, if any, if in the basic or higher band. And, student lian oaymenrs, charges for benefits in kind, pension contributions and all sorts of things have a bearing.

But neither income tax nor NI have changed by anything like enough to cause that extra £15k to be hit by a 76% marginal rate, which is what it would take to leave you with £3600 more out of a £15k rise. Unless you were either extremely poorly paid, or extremely well paid (and in the UK the whole time) then the marginal rate would be about 40%, give or take a bit, not 76%.

Of course, if you've moved countries, and tax systems, in that time, all bets are off.

Oh, and currently, the effective combined tax and NI rate on overall earnings of £40k works out at a touch under 25% (24.6%) assuming no other charges or allowances, and a standard tax code.

[flearider]

wow I'm screwed work hard (45hr week)and never break 17k .. yet I feed the kids and keep em clothed and warm .. it's all that matters

[OilSheikh]

Saracen , correction on my part, it's actually 11k. Thought it was 15k

But, it's still an increase of only £300 a month. Never moved countries

[kalniel]

wow I'm screwed work hard (45hr week)and never break 17k .. yet I feed the kids and keep em clothed and warm .. it's all that matters

That's below the 'living wage' isn't it? I take my hat off to you if you're able to manage dependencies as well on it.

[Saracen]

Saracen , correction on my part, it's actually 11k. Thought it was 15k

But, it's still an increase of only £300 a month. Never moved countries

Still seems high.

Roughly speaking, depending on whether you're already paying higher rate tax or not, the marginal rate on your pay rise ought to be 30% (IT & NI) or 40%. Even at the higher rate of 40%, £11k ought to get hit for about £4400 in taxes, leaving you with £6600, or about £550/month.

Unless, something else is mixed in, like student loan repayments kicking in, but that isn't a tax but a loan repayment collected via the PAYE system. Basic Income Tax and NI shouldn't, as far as I can see, be hitting at anything like that rate. That said, my accountancy days are way in the past, and I'm beyond rusty.

[Zak33]

Saracen , correction on my part, it's actually 11k. Thought it was 15k

But, it's still an increase of only £300 a month. Never moved countries

Oil... use this

http://www.listentotaxman.com/

best website for many years

Put in the salary and your tax code and see the yearly, monthly or weekly salary

dead easy and very flexible.

In 2010 /11 the tax code was about 647L I think.. ie earn 6470 per year tax free then start paying

I make guess... here goes

£30k salary in 2010/11 with tax code of 647L Monthly take home £2,172

£45k salary in 2013/14 with tax code of 944L Monthly take home is £2,997

I think you're forgetting something? Maybe like Sara says you weren't paying into a pension and now you are and it's taken out at source ("smart pension to save you paying NI on the contribution) or maybe you're getting a load of benefits now that you're taxed and so your tax code is lowered by that value and you're taxced on it.

Typical family health cover is about £1,700 /year (mine was last year). You'd pay tax on it and if you were a higher tax payer that's £56 / month from your salary (£1700x40% / 12 months)

[scaryjim]

... Basic Income Tax and NI shouldn't, as far as I can see, be hitting at anything like that rate. That said, my accountancy days are way in the past, and I'm beyond rusty.

No, you're quite right - having fairly recently refreshed myself on tax and NI in preparation for going self employed again (which I ended up not doing). If you were the final year of the old-style student loans, though, you could have ended up tripping over the loans threshold, and could quite easily have loan repayments of ~ £200 a month, which could balance out the difference. But old style loans weren't collected through through PAYE, and I'm pretty sure that new-style loans aren't as punitive as ~ 35%, which is what they'd need to be to hit you that hard.

Definitely get your tax returns and PAYE codes checked out: something is amiss and you might find a rather nice May savings account at the end of it

[badass]

Unless there's more to that than meets the eye, you need to check your taxes, because something doesn't add up.

At today's rates, and without other factors, if you get a £15k pay rise, then you'd pay roughly £6k in tax and keep £9k.

For instance, at £40k, you'd keep £30,154 and pay £9845 in combined Income Tax and NI.

At £55k, you'd keep £39041 and pay £15958 in combined IT and NI.

I.e. take-home up by £8887 and IT+NI up by £6113.

In the context, this is probably correct.

However it is also government peddled rubbish as well.
To Calculate the true tax on earnings, add 13.8% of your gross pay to the NI contributions.
i.e. at £40k (using Saracens figures above) you pay £9845(combined Tax and employees NI)+£5520 (employers NI)
So your £45520 pay - Not the £40,000 you think you earn - you Pay £15365 in tax. Nearly 34% in tax.
Between what you think of as £40k and around £42k, the marginal rate is the basic rate (20%) plus Employers NI (13.8%) plus Employees NI (12%)
i.e. around 46% - nearly half that extra money goes straight to the government so they can but some votes or print the money and set fire to it.
When you hit the 40% band, you are actually in the 40% (Higher rate) plus employees NI (2%) plus the employers NI (13.8%) or the ~56% band.

Rough percentage figures because I can't be bothered to work out if the percentages need compounding or not.

[OilSheikh]

I just tried Zak's link

Tax code 944L
Tax free Allowances £9,449.00 pa
Total Deductions £7,715.48

And, I need to make further corrections. My salary has actually gone up by £600 every month. So, increase of £7k in my pocket and £4k in tax. That's still a lot of tax.

[Saracen]

In the context, this is probably correct.

However it is also government peddled rubbish as well.
To Calculate the true tax on earnings, add 13.8% of your gross pay to the NI contributions.
i.e. at £40k (using Saracens figures above) you pay £9845(combined Tax and employees NI)+£5520 (employers NI)
So your £45520 pay - Not the £40,000 you think you earn - you Pay £15365 in tax. Nearly 34% in tax.
Between what you think of as £40k and around £42k, the marginal rate is the basic rate (20%) plus Employers NI (13.8%) plus Employees NI (12%)
i.e. around 46% - nearly half that extra money goes straight to the government so they can but some votes or print the money and set fire to it.
When you hit the 40% band, you are actually in the 40% (Higher rate) plus employees NI (2%) plus the employers NI (13.8%) or the ~56% band.

Rough percentage figures because I can't be bothered to work out if the percentages need compounding or not.

Employer's NI is a tax, by definition, that the employer pays, not the employee, though. It forms no part of an employee's pay packet. Yes, it forms an additional cost on employment, but not of an employee's remuneration, net or gross, or their tax/NI.

The figures I gave, based on two assumptions of gross pay, were ACTUAL Income tax and NI figures, nerely rounded a bit, based on current tax year, standard tax code and no other settings.

[Saracen]

I just tried Zak's link

Tax code 944L
Tax free Allowances £9,449.00 pa
Total Deductions £7,715.48

And, I need to make further corrections. My salary has actually gone up by £600 every month. So, increase of £7k in my pocket and £4k in tax. That's still a lot of tax.

Tax rates will always look high on extra income, though, compared to what you might expect, because personal allowances are always fully absorbed by initial pay, assuming you earn more than the level of PA's.

If, for example, you earn £20k, then at this year's rates (IIRC, or if not, for example) you get £10k free of IT, and only pay tax at basic rate on the remaining £10k, so for a basic rate of 20%, the effective rate is 10% as you only pay tax on half of it. If you then get a £10k pay rise, you'll be paying at a marginal rate of 20%, because you've already used the PAs.

NI is a bit different, in that you don't get PAs, but only start paying on earning above, IIRC, a "lower earnings threshold" which used to be similar to the PAs, but with the coalition "£10k tax free" promise, has failed to keep pace with the rise in PAs. Which, by the way, makes the cialition claim to have taken millions of people out of tax altogether a bit dubious, as these days, NI is no longer a ring-fenced fund but, in all but name, income tax. It is just, annoyingly, calculated in a different way, especially in that that exempt bit is not cumulative over the year.

If by "salary gone up by £600 every month" you mean the post-tax take home, as implied by your £7k figure, then salary has actually gone up by £11k, of which tax is £4k and you get £7.2k.

If you have an £11k rise, and take home £7.2k of it, then the marginal rate (IT and NI) is about 35%, which is certainly of the right order of magnitude.

I haven't done it in recent years, but I did have spreadsheets showing effective tax rates (for IT, NI and IT+NI) for several consequtive years, assuming standards PAs and no other non-standard items, and there is no income levels at which the combined marginal rate gets anything near the levels you initially mentioned. You could be earning billions, and if it was all earned income going through PAYE (which it wouldn't be, I'm sure) you'd STILL only have been paying something like a 41% marginal rate.

Now, more recently, that will have gone up a bit with top-level rates and NI changes, and, finger in air I'd guess at maybe 45% effective rate. But still, nowhere near those initial rates.

Quick calculation, 2014/15 rates, shows on £250k, you'd take home £143k, and pay an effective combined IT+NI rate of some 42.8%.

Of course, anyone earning that kind of income with an IQ above 3 is going to find some ways of mitigating that a bit, such as deferring some of it via, say, pension contributions, or share options, etc. But nobody, at all, with standard tax circumstances, is paying anything remotely like a 76% marginal tax rate. That's heading into the old supertax territory that caused the brain-drain. I don't believe even pretty left-wing Labour chancellors are stupid enough to try that again, because we know it doesn't work. The "pips" don't squeak, as the saying goes. They leave, in large numbers, or simply stop working.

[OilSheikh]

I just checked my payslip for this month and my salary has gone up by £10 a month , thanks to reduction in taxes by the govt.

[herulach]

Well, there's a few things in that. I suspect that, as many people are used to getting an annual pay rise, they get to expect it and consider it almost a right. Then get the hump if it doesn't happen.
snip...

Putting aside whether I agree with the rest of your points or not (its a pretty mixed bag), I don't think its unreasonable to expect wages to rise inline with inflation, indeed this is basically the norm. Hence why the tax bands move each year etc. Its also not unreasonable to expect things to happen the same as they have in previous years.

Everywhere I've worked has been either professional or unionised (or both) so my perceptions may be a little skewed, but the confirmation of any rises (except at my current employer that doesn't have a tiered scale) have always been structured as an allowance for inflation, which applies to everyone at that grade, and an amount on top for performance. A 0% performance rise is certainly not unusual, but not getting the inflation bit is basically only people who are pretty damn bad at their job.

[Zak33]

I just checked my payslip for this month and my salary has gone up by £10 a month , thanks to reduction in taxes by the govt.

mine too.

but no doubt someone will point out we've lost it somewhere else.. tax disc on your car, fuel duty, etc

[badass]

Employer's NI is a tax, by definition, that the employer pays, not the employee, though. It forms no part of an employee's pay packet. Yes, it forms an additional cost on employment, but not of an employee's remuneration, net or gross, or their tax/NI.

The figures I gave, based on two assumptions of gross pay, were ACTUAL Income tax and NI figures, nerely rounded a bit, based on current tax year, standard tax code and no other settings.

Whether your employer or you pay it, both are taxes based on your salary. Your employer pays out an amount. The government then takes 13.8%, this is hidden from you, then the government takes a whole lot more that you do see. The only difference is you see one tax and not the other. This is dishonest through necessity. How much support on a basic tax rate of 33.8% plus NI do you think the government would have?

[scaryjim]

Your employer pays out an amount. The government then takes 13.8% ...

Sorry, but as someone who's done PAYE calcs as an employer, just no. The employer pays you an amount, and your tax and NI are deducted from that. They then pay an additional amount, themselves, to the government, which happens to be 13.8% of your gross pay. That doesn't come from your pay, it's additional to your pay. Don't kid yourself that if your employer didn't have to pay employer's NI they'd pay you 14% more than they currently do.

Employer's NI contributions are deductible from profits for other considerations like corporation tax, so it's not a straight 1:1 ratio. I also suspect there's some complicated interaction with things like SSP/SMP/etc. which I never had to deal with. So trying to claim that employer's NI is a straight deduction from your wages seems rather naïve to me...