Payslips
Payslips come in a variety of designs.
They will usually show various totals and personal information, in addition to the actual pay.
Example
Basic Pay = Pay earned during period without overtime or other remuneration.
Gross pay = Total of income earned during pay period.
Total Deductions = Total of all monies taken off.
Net pay = Gross pay – total deductions.
This is what you get “in hand” or “bottom line”.
Tax Code : This is how much you are allowed to earn before you pay tax.
Here, Joe Bloggs can earn £3960 prior to paying tax.
What is Joe Bloggs’ salary ?
His salary is £2133 x 12 = £25,596
Example
Paul works a 35 hour week.
He is paid £5.80 per hour.
What is his weekly wage ?
Basic pay = Number of hours worked x hourly rate
= 35 x £5.80
= £203
Overtime
Overtime Paid = hourly rate x overtime rate x no. of hours worked
Example
Jack Soap earns £5.78 per hour. He normally works a 37 hour week, but this week
worked an extra 8 hours on Saturday, at time and a half,
and 5 hours on Sunday at double time.
- How much overtime did he earn ?
- What is his gross pay for the week ?
He earned £127.16 overtime
His gross pay for the week is £341.02
Superannuation
Superannuation contributions are payments made towards a pension.
Example
( Use payslip above)
What percentage of Joe Bloggs’ salary is paid on superannuation?
Income Tax
Income tax is payable on all taxable income.
Taxable income = Total income – Personal Allowance – Any other allowances
The rates vary every year, but usually you pay a certain percentage.
The tax year runs from 6th April to 5th April , so Tax Year 2005/06 runs from 6th April 2005 to 5th April 2006.
Example
Using payslip above
How much 2005/06 income tax was Joe Bloggs due to pay per month ?
Joe Bloggs is due to pay £ 4171.25 per year.
£4,171.25 ÷ 12 = £347.60 per month tax
Changes to UK Income Tax from tax year 2017/18
Income Tax in Scotland
The Scotland Act 2016 provided the Scottish Parliament with the power to set all income tax rates and bands (except the personal allowance, which remains reserved) that will apply to Scottish taxpayers' non-savings, non-dividend (NSND) income from 6th April 2017 onwards.
Examples using tax year 2020 /21
In tax year 2020/21 the Scottish bands were
- Starter Rate 19%
- Scottish Basic Rate 20%
- Intermediate Rate 21%
- Higher Rate 41%
- Top Rate 46%.
This is an example of a progressive tax system.
Source Data Scottish Government
In tax year 2020/21 , the UK bands were
- Basic rate 20%
- Higher rate 40%
- Additional rate 45%.
Source UK Government Income Tax
The taxable allowance for tax year 20/21 was £12,500
This resulted in different calculations of tax.
Example
John Doe has a salary of £34,000 per annum and a personal tax allowance of £12,500. He has no other tax deductible allowances for the tax year 2020/21. What is the difference in tax paid if he is domiciled in Scotland versus tax paid domiciled in the rest of the UK ?
First, calculate the taxable income
Taxable income = Total income – Personal Allowance – Any other allowances
In Scotland, during tax year 20/21 John must pay
19% on the first £2,085
20% on the next £10,573
21% on the remaining £8,842
or looking at this differently,
His total income tax due is £ 4,367.57
In the rest of the UK, John pays a flat rate of 20% of the entire £ 21,500 since it is less than £37,500.
Again , a different view
His total income tax due is £ 4,300.00
He pays £67.57 more tax in Scotland during tax year 2020/21
Example
A person on a salary of £25,000 during this tax year with a personal tax allowance of £12,500 and no other tax deductible allowances for the tax year 2020/21 would pay £20.85 less in Scotland than elsewhere in the UK.
Scotland
Alternative calculation
UK
Alternative calculation
£2,500 - £ 2479.15 = £20.85 less in Scotland than elsewhere in the UK.
Example
A person earns £40,000 in tax year 20/21 and pays 10% as superannuation.
Tax due in Scotland
Or, since pension is tax deductable, salary becomes £36,000
Rest of UK
£4,787.57 - £ 4,700 = £87.57 more in Scotland than elsewhere in the UK.
In tax year 2020/21 a salary of £27,243 resuled in equal income tax being paid in both Scotland and the rest of the UK.
Tax year 2020/21 :
A salary greater than £27,243 resulted in more income tax being due in Scotland compared to rest of UK.
A salary less than £27,243 resulted in less income tax being due in Scotland compared to rest of UK.
National Insurance
National Insurance Contributions (NIC’s) are payable in addition to Income Tax.
The threshold of earnings is the amount of money you can earn without paying NIC’s.
For the tax year 2005/06, the earnings threshold was £94 per week or £408 per month.
Examples
Using payslip above
How much 2005/06 Class 1 National Insurance was Joe Bloggs due to pay per month ?
Rates 2020/21
How much Class 1 National Insurance is John Doe from above due to pay per month during tax year 2020/21?
Source National Insurance
© Alexander Forrest