How much of your salary goes on tax?

By MoneyWeek editor-in-chief Merryn Somerset Webb Jun 01, 2012

Merryn Somerset-Webb

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If your tax is deducted from your salary at source via PAYE, do you really know how much of it you pay? Most people (57% according to HMRC) don’t. So I’m pleased to see that in advance of the government’s plan to send out individual tax statements to us all from 2013, HMRC has introduced a new online calculator to help us all see where our money goes.

All you have to do is visit www.hmrc.gov.uk and pop your annual salary – let’s say it is £60,000 – into the right box and next thing you know you’ll be hyperventilating. In this case you will find that you pay a total in income tax (including national insurance, or NI) of £353.87 a week, or £18,401.24 a year. You can then check the detailed breakdown to find out “how the government spends your taxes”.

Someone on a £60,000 income pays £6,127 towards the nation’s welfare bill, £3,201.82 towards health, £2,392 towards education, and £368 towards housing and local services (even before council tax!). He then adds in another £920 towards recreation, culture and religion, £400 for government administration and £1,060 on defence.

If that isn’t bad enough, he pays £1,177 in interest on our national debt. You’ll be upset by now. But if you stop to visit the website and run your eye to the bottom of the page, you’ll see that your £18,401 is just the beginning. Income tax in the form of what we think of as income tax and NI makes up a mere 43% of government revenues. The rest comes from VAT (17%), council tax (4.5%), business rates (4.5%), corporation tax (8%), excise duties (8%) and a mysterious sounding “other” (14%).

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What does this all add up to? It’s a tricky calculation and I can’t find a definitive number for the total percentage of income the average top-rate taxpayer hands over every year (if you do please tweet me at @merrynsw). But for a hint you might download a copy of the TaxPayers’ Alliance (TPA) free Taxbuster App (www.tpataxbuster.co.uk).

This looks at the item you’re buying and all the taxes you pay on it – that’s VAT as well as duties you pay on alcohol, tobacco, fuel and flights. It also looks at your income and how much you have to earn before tax in order to pay for the item in question.

So, let’s say our £60,000 earner buys himself a new pair of shoes costing £40. Add in income tax, VAT, employer’s NI, etc, and on TPA numbers he would have had to earn £81.93 to buy the shoes, 59.32% of which would have gone on one tax or another. Something to remember next time you think more government spending might be the obvious answer to our current economic problems.

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Published in Tax | More articles by Merryn Somerset Webb

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  • 1. Boris MacDonut

    (07 June 2012, 03:43PM)  Complain about this comment

    Like many HMRC sites the calculations are awry. It got mine wrong and they even got Doris MacDonut's friend's tax level wrong (and she is a tax inspector!). Apparently it does not allow properly for pension contributions,company cars etc. Typical contributions, especially for those on £60k and over are about 8%.....tax free. This reduces the burden in the example by £2,000 or 3.4%. Someone on £60k pays 30.6% tax or if they contribute 8% to a pension they pay 27.2%. Is that so onerous?
    The interest on our national debt totals approx £42 billion pa. It is shared by all taxpayers,i.e all adults, and is in fact £850 each.

  • 2. Luke

    (07 June 2012, 04:15PM)  Complain about this comment

    Have you fallen into the CEO trap of comparing your earnings to those around you rather than the population as a whole? £60,000 is about double median earnings.

  • 3. Boris MacDonut

    (08 June 2012, 06:17PM)  Complain about this comment

    #2 Luke. No. Median earnings are only about £25,000 due to many part timers. Average earnings are £33,600. I think Merryn is talking about the sort of person who may have a few quid left to invest.....but not those of us with kids! The same happens in the Sunday Times whose Money pages talk about a typical mortgage of £250,000. Typical for the posh kids who the ST journo's mix with and those who are featured on their finance pages. Totally out of touch with the real world, but cushioned by the smug knowledge they need not take part in the real world.

  • 4. Boris MacDonut

    (09 June 2012, 07:44PM)  Complain about this comment

    Apologies to any posh kids who may have fallen on hard times.

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