Saturday 15 March 2008

Tax needn't be taxing

If you have to work out the total PAYE income tax and Employee's National Insurance deducted from your wages or salary, you can:

1. Waste about ten minutes with a set of tables, splitting your income into the different bands, calculating the tax due at 0%, 10%, 22% or 40% (from 5 April 2008, 0%, 20% and 40%) and the NI due at 0% and 11% and 1%, totting these all up, dividing by twelve or fifty-two as appropriate and knocking it off the figure you first thought of;

2. Use a handy online calculator, like this one; or

3. If you can't be bothered with method 1 and you aren't online, all you have to do* for a basic rate employee is knock off £5,444 and times the excess by 31%, or for a higher rate employee, knock off £14,562 and times by 41%. Then there's the stupid intermediate band between £40,040 and £41,435, where you have to add on £11,030 and times by 21%.

Which sort of begs the question, if you are on a low salary of £15,000, would you rather knock off £5,444 and pay 31% x £9,556 = £2,962, or knock off £14,562 and pay 41% on £438 = £180?

* Assuming a normal PAYE code of 544L for 2008-09

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