Published on May 16, 2013
The UK's taxes on people's wages are needlessly complex and obscure. Produced with the team from See what you mean, the video highlights how National Insurance is a second income tax in all but name.
Previous YouGov polling for the TPA has shown that many people are not aware of how much tax they actually pay. The video makes clear the real rates of tax people pay when Employee's National Insurance and Employer's National Insurance are factored in.
Basic: Employer's NI 13.8 % + Income Tax 20 % + Employee's NI 12% = 40.2%
Higher: Employer's NI 13.8 % + Income Tax 40 % + Employee's NI 2% = 49%
Additional: Employer's NI 13.8 % + Income Tax 45 % + Employee's NI 12% = 53.4 %
Calculations: Employer's National Insurance is added at the rate of 13.8% on top of gross salary. So if you're paid another £87.87 of gross salary, the employer has to pay an additional 13.8%, which would be £12.13, That adds up to £100.
For basic rate (20p) taxpayers:
From your additional gross salary of £87.87, you have to pay 20% Income Tax, or £17.57.
And you pay Employee's National Insurance at 12%, or £10.54.
So you're left with £59.75 from that £100 that your employer paid out.
In other words, the real tax rates are, all from that total £100 cost of paying you more, 12.1% Employer's National Insurance, 10.5% Employee's National Insurance, and 17.6% Income Tax, adding up to a true basic rate of 40.2%.
The same process is used to calculate the true rate of 49.0% for higher rate (40p) taxpayers and the true rate of 53.4% for additional rate (45p) taxpayers.
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