This is a payslip for a supply teacher, showing income and deductions. On an emergency tax coding, tax is levied at basic rate (22%) on all earnings after pension contributions have been made. National Insurance is paid at the reduced rate of 9.4%, because the teacher is in his/her occupational pension. Total tax and NI: £399.61 / £1,472.20 gross pay = 27.14%.Oh no, it isn't.
The tax that dare not speak its name is employer's National Insurance, which would be around £93.37. It's an extra cost that the employee never sees, but it's money that could be paid in wages if it were not deducted at source. Therefore, the gross (pre all stoppages) pay is higher than shown, and so are the deductions.
So why don't we see payslips that tell the whole story, say something like this? ...
The reason is obvious, isn't it? Especially when you show the appropriate marginal rate. And if this was a payslip for someone not in an occupational pension, the marginal rate of N.I. would be 11% for the employee, and 12.8% for the employer. In other words, £100 extra payslip-declared salary would actually cost the employer a total of £112.80, with marginal-rate deductions of £22 in income tax and £23.80 in N.I. ! In that case, the real effective marginal rate of revenue-raising would be 45.80/112.80, or 40.6%.
The average wage earner is, in fact, a 40% taxpayer, without knowing it.
Is it illegal to show the truth on your employees' wage slips? Don't you think it would make the ordinary person start to take the taxation issue seriously?
great site and another good post. unfortunately you are making the assumption the avg. wage earner is thinking about anything other than American Idol and getting his prozac refill.
ReplyDeleteBut if he had more money he could buy more beer!
ReplyDeleteThen 17.5% on nearly everything they purchase...
ReplyDeleteWelcome back, ACO. Yes, and what is it on petrol, and whisky?
ReplyDeleteHoped to find some posts on your blog - have you been spring-cleaning it?
"Is it illegal to show the truth on your employees' wage slips?"
ReplyDeleteIf not, it would be made so the moment many employers did it.
Hi DM: Okay, let's all rush 'im together!
ReplyDeleteIf NIC and Income Tax were conflated, you could finally get properly attractive tax relief on pension contributions for those who have most need to make them.
That's a good point. I imagine that THEY will combine employees' NI and income tax when they grasp the nettle of taxing the retired more heavily. To throw in employers' NI too would be cruel and heartless. Not unlikely, then.
ReplyDeleteNaturally this hasn't escaped the attention of the self-employed. That's why almost every one of them votes Conservative.
ReplyDelete