Tax 2011/12

Who really pays super-tax?

Starting this year (2011), high earners will pay 50% tax plus 2% National Insurance on income exceeding £150,000.

But how much tax do low earners pay on additional earnings?

The basic rate of tax for low earners is an apparently reasonable 20% on income over £7,480 pa. But there is also the matter of a 12% National Insurance deduction on all income over £136 pw (about £7,091 pa). And if they qualify for Tax Credits (which low earners over 25 and almost all parents do) their tax credit gets withdrawn at a rate of 41% of any pay exceeding £6,420 pa. So most low earners are subject to a marginal tax rate of 20% + 12% + 41% = 73%! (*1)

If you're on minimum wage you're probably desperate to make a few extra bob (and keep your job) so you're inclined to accept any overtime thrown your way. How much is it worth to you, in real money-in-your-pocket terms? Well, £1.60 an hour, actually.

If you have a student loan and your gross pay exceeds £15,000 pa, you also have to pay 9% of any extra earnings to the student loan company. So in that case you pay 82% tax on your overtime! It is difficult to earn £15,000 on minimum wage, but student loan repayments are extracted from weekly income exceeding £288. Putting in an extra shift one week could take you over the threshold and perhaps net you as little as £1.07 an hour.

But what if the Living Wage Campaign succeeded in embarrassing your employer into paying you the proposed higher hourly rate of £7.20? Then your gross pay could easily exceed £15,000, and if you are a recent graduate you will almost certainly be subject to the 82% marginal tax rate on all additional earnings. At the higher rate you might feel even more willing to work a bit of overtime, but what exactly would that put in your pocket? £1.30 an hour. Two hours of drudgery for the price of a pint. (*2)

The benefit to the taxman is enormous. No surprise then that David Cameron thinks the Living Wage Campaign is a Good Thing. He wants us to 'work our way out of poverty', but how are we to do this when he takes away three-quarters of every extra penny we earn and pays it out in bankers' bonuses?


Even if you have read this far, you probably don't believe me. I don't blame you. The UK tax regime is horribly complex even for the lowest paid among us. But if you have any interest in numbers or taxation or for that matter justice, please have a look at these examples I have worked for a 25-year old single person, and a lone parent in which I compare their situation at the current minimum wage versus that at the proposed Living Wage. If you can identify the flaw in my logic and/or arithmetic I'd be very happy to be shown to be wrong because it sickens me to think I live in a society so inequitable. You can email me at


The tables below show the tax rates applicable on various segments of income for three different categories of worker:

Single person working less than 30 hours per week

Single person working more than 30 hours per week

Lone parent with one child


My calculations are based on data from these HMRC pages:

Tax Credits:

National Insurance rates:

Tax rates:


I know tables are not always the best way to present figures, so I have made some graphs to try and illustrate what I am driving at. But our tax regime is so obtuse that it defies description by any means other than analysis of real examples.


Living Wage Tax Comparison (2014)


And let's not forget the childcare swindle.


(*1: Tax credits are based on the previous year's income, so the withdrawal is shrewdly delayed so that it is not readily apparent to the tax payer. But the withdrawal is real, whether it is obvious or not. Tax Credit is really nothing other than a refund of overpaid taxes from the previous year.)

(*2: Not everyone will regard student loan repayments as a tax. It depends I suppose on whether you think education should be available to all or reserved for those children lucky to be born into wealthy families.)