Every year when the budget comes out you hear about taxes going up, the economy growing and unemployment going down. If you’re in employed work and receiving a monthly salary you might not really understand or care how the budget affects you. However, the salary you receive in your bank account is what you get after your employer has taken the PAYE. Your PAYE is made up of your national insurance contributions and income tax.
What is PAYE?
PAYE is short for Pay As you Earn and it is a method of paying your income tax and national insurance contributions from your wages or occupational pension. The net salary or pension you get every month is after all these tax have been taken out. Wages can be made up of your pay, sick pay, maternity and paternity and adoption pay.
Income Tax
Your income tax is the tax you pay on your income after your personal allowance. Your personal allowance for this tax year (2015/16) is £10,600 going up to £11,000 for (2016/17). More details can be found here.
These figures change every year when the budget comes out. The higher the personal allowance, the less tax you have to pay. However, as your income rises and goes above £100,000, the amount of personal allowance you have available to claim reduces. The personal allowance can also depend on blind person allowance and age related allowances which have different limits.
National Insurance
Class 1 national insurance can change in the budget too but has remained constant for a few years now. The employee national insurance is paid at 12% of your gross wages for most employees assuming your gross wages is within the basic pay limits – more details of the thresholds are below.
The employer national insurance is paid at 13.8% of your gross wages but this doesn’t affect your net salary. National insurance is paid to provide state services such as the NHS and education. More on national insurance can be found here in my previous blogs. Class 2 NI and Class 3 NI.
What is the budget?
The Budget, or Financial Statement, is a statement made to the House of Commons by the Chancellor of the Exchequer on the nation’s finances and the Government’s proposals for changes to taxation. The Budget also includes the forecasts for the economy by the Office for Budget Responsibility (OBR).
In short, if all you were interested in the budget is based solely on your salary, then the two main things you would look out for are the personal allowance, the higher it is the better for you and if there are any changes in national insurance. The next budget will be delivered by the Chancellor of Exchequer on the 8th March 2017.
Relevant tax tables
Currently, based on the figures in the last budget, in order to calculate how much you will take home after tax and NI, the chart below will give you some guidance:
| Gross wages | Net 2016/17 | Net 2015/16 | Difference |
| £10,000 | £9,767 | £9,767 | £0 |
| £20,000 | £16,767 | £16,687 | £80 |
| £30,000 | £23,567 | £23,487 | £80 |
| £40,000 | £30,367 | £30,287 | £80 |
| £50,000 | £36,307 | £36,326 | -£19 |
| £75,000 | £50,807 | £50,826 | -£19 |
| £100,000 | £65,307 | £65,326 | -£19 |
| £150,000 | £90,067 | £90,086 | -£19 |
The National insurance contribution limits and thresholds are listed below. More details of this can be found here.
| Limits and threshold | 2015/16 | 2016/17 |
| Lower earnings limit, primary Class 1 | £112 per week | £112 per week |
| Upper earnings limit, primary Class 1 | £815 per week | £815 per week |
| Primary Threshold | £155 per week | £155 per week |
| Upper Secondary threshold for under 21’s | £815 per week | £815 per week |
| Secondary threshold | £156 per week | £156 per week |
As mentioned above, these figures have been taken from the last budget statement which was delivered by the Chancellor of the Exchequer, George Osborne, on Wednesday 16 March 2016.
Links
The following links will give you more information on PAYE:
- https://www.citizensadvice.org.uk/debt-and-money/tax/how-to-pay-income-tax/the-pay-as-you-earn-paye-system/
- https://www.gov.uk/income-tax/how-you-pay-income-tax
- https://www.gov.uk/income-tax-rates/current-rates-and-allowances
- https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions
Need help with your tax returns? Follow this link to find out how I can help you. In the meantime, you can download a free tax dates guide for March.
An accountant and a Mum 