## WHAT IS TAKE HOME PAY

The take home pay is the amount an individual gets, post deductions, from the employers at the end of each payroll period in their bank account. The payroll period may vary from employer to employer. The take home pay is subjected to a number of deductions and the amount received is lower than the headline salary. The amount corresponding to deductions such as income tax, insurance contributions, employee loan etc. is reduced from the gross pay per month to arrive at the net take home pay. Hence, take home pay is the money an individual actually get paid after all deductions.

#### Take home pay calculator for an individual employed under pay-as-you-earn (PAYE) in the United Kingdom

For individuals employed under PAYE, the take home pay is computed considering many factors. Depending on the type of employment of an individual, the gross salary for a particular period is computed to arrive at the weekly, fortnightly, or monthly income of an individual. A PAYE operate can help to compute the tax and the insurance contribution due amount on the salary. For individuals who are new to the job environment such as college graduates, the tax amount deducted is used as funds for a state to build roads, infrastructure, protection / defense, and public health and also the National insurance intends to fund the public retirement poll. As individuals grow in their career, it is important to make sure that the affairs are right with these contributions.

## UK TAKE HOME PAY CALCULATOR

To understand how the HMRC Take Home Pay Calculator works, let’s consider an example that will make the concept clearer. To begin calculating the take home pay:

1. Firstly, the personal allowance is applied to the income of an individual. The way it is applied entirely depends on an individual’s tax-code received from HMRC. The personal allowance is the amount an individual is permitted to earn before tax is payable on the income, in one tax year. In simple words, the personal allowance is more often than not divided into 12 parts and applied monthly for individuals who are paid monthly. Personal allowance is divided into 52 parts and is applied weekly for individuals who are paid weekly. Personal allowance is applied by deducting the appropriate amount of annual personal allowance from the applicable part of the salary. Under PAYE, this process can be a little complex. However, even if an individual is not working for a complete year, the respective individual might still be eligible for the full allowance, hence a tax reimbursement is possible
2. Once the personal allowance is applied, other allowable costs such as certain pension payments are reduced, and the remaining amount is the taxable income. Tax is applied to the taxable income in bands, for example;

• the basic rate of tax for an individual is 20%

• the higher rate is 40%

• the additional rate is 45% for individuals whose taxable income exceeds £150,000 per annum

3. National Insurance is charged individually from PAYE over the whole of the salary subject to thresholds and bands dissimilar from those used for PAYE. Generally, National Insurance is charged against income above £149 per week

## MONTHLY TAKE HOME PAY CALCULATOR

Let’s understand the take home pay through the calculation below. As an example, we assume the annual salary of an individual to be £24,000 per annum. Now,

Particulars Values
Monthly Salary (£24,000/12) @mdo
Tax computation
Income up to Primary threshold £663
Income subject to National Insurance @ 12% £1,337
National Insurance contribution £160
Tax computation
Monthly Salary (£24,000/12) £2,000
Basic rate tax @ 20% (£233)
National Insurance contribution (£160)
Take home pay £1,606

## TAKE HOME PAY CALCULATOR UK – THE NEW PERSONAL SAVINGS ALLOWANCE

Starting April 2016, a new Personal Savings Allowance (PSA) will be introduced that allows the United Kingdom savers to earn up to £1,000 of tax-free interest each year. The level of PSA depends on an individual’s income tax band, as follows:

Tax band Personal Savings Allowance
Basic rate taxpayer Up to £1,000 savings – tax-free interest
Higher rate taxpayer Up to £500 savings – tax-free interest
Additional rate taxpayer £0 (no PSA)

As a result, savings accounts will now pay gross interest, instead of net interest which means they don’t deduct income tax at source. Rather, they will report to the Inland Revenue about the specific amount they have paid to whom, so that an individual’s tax code can be changed if individuals end up with unsettled income tax on interest which is more than the Personal Savings Allowance.

### Effect on the significance of Cash ISAs

With the introduction of the Personal Savings Allowance, it’s no longer the case where a Cash ISA in general beats non-ISA savings accounts for the reason that the difference in net interest is caused by the subtraction of income tax. With the threshold being set at £1,000 for basic rate tax-payers, individuals will need more than £80,000 in savings in a best-buy 1.25% AER savings account before having to look for income tax protection. Being said that, there are still reasons to consider using the annual ISA allowance as this allowance is a permanent tax cover that adds up each year. In other words, if an individual starts to earn interest above the Personal Savings Allowance (let’s say, a higher-rate taxpayer with more than £44,000 in a 1.15% AER account), under the present guidelines an individual will not be able to transfer that whole amount into an ISA in one go. The PSA is only relevant to taxable savings which means that individuals can keep on subscribing to an ISA while also earning the PSA equivalent of interest in a non-ISA savings account.

Allowance 2015/16 2016/17 Change
Basic £10,600 £11,000 + £400
Individuals born between 6th April 1938 - 5th April 1948 £10,600 £11,000 + £400
Individuals born before 6th April 1938 £10,600 £11,000 +£340
Allowances for Married Couples (if born before 6th April 1935) £8,355 £8,355 none
Allowance for Blind People £2,290 £2,290 none
Transferable personal allowance between spouse £1,060 1,100 +£40

### TAX BRACKETS

Tax Rate* 2015/16 2016/17 Change
Basic rate (20%) £0 – £31,785 £0 – £32,000 increased by £215
Higher Rate (40%) £31,786 – £150,000 £32,001 – £150,000 reduced by £215
Additional Rate (45%) £150,001+ £150,001+ no change

### CHANGE IN TAKE HOME PAY AFTER TAX AND NATIONAL INSURANCE

Gross Wage Net 2015/16 Net 2016/17 Difference
£10,000 £9,767 £9,767 no change
£20,000 £16,687 £16,767 +£80
£30,000 £23,487 £23,567 +£80
£40,000 £30,287 £30,367 +£80
£50,000 £36,326 £36,466 +£140
£75,000 £50,826 £50,966 +£140
£100,000 £65,326 £65,466 +£140
£125,000 £75,586 £75,566 -£19
£150,000 £90,086 £90,066 -£19

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