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Income & NIC taxes

Is the UK Income and NIC taxation system progresive or regressive?>

If you study all the detailed calculations further down under, you will see that it is more regressive than progressive and the main reason why the gap between the poor class, middle class and upper class (one third each) has widen over the past 50 years.

The combined effective tax and national insurance employee contribution effective tax/nic rate on employed persons (i.e. about 25 million tax payers out of 30 million who are working) is 20.5% for those earning between £17,000 and £18,000 p a; 26% on those earning between £35000 and £36,000; and 27.5% on those earning between £71,000 and £72,000 pa.

The above would cover approximately 90% of the working population. A household that earns £17,500 combined pays £3,587 in tax and NIC (PAYE) taxes; a household earning £35,500 pays £9,230 p a in PAYE taxes; and a household that earns £71,500 pays £19,662.

Net to spend left with the poor class household is £13,913, that is £268 per week.

Net to spend left with the middle class household is £26,270, that is £505 per week.

Net to spend left with the upper class household is £51,838, that is £997 per week.

The idea of big society by David Cameroon and Nick Clegg can only work if multinational companies market share of comsumer demand in the UK is reduced from the current 75% to 50%. For example, one third of super market groceries stores would need to be closed and give way to small farmers and small shop keepers.



Income Tax Rates and their interaction with Tax Free Personal Allowance (1 and/or 6 April 2009 to 31 March and/or 6 April 2010.

Income Tax rates for employees and self employed are the same.

UK Income Tax Rates are: 0% on the first £6,475 (tax free "personal allowance"); 20% on the next £37,400; and 40% on all income above £43,875 per year.

For the majority of the 25 million who work full time, the effective income tax rate works out as follows:

Salary/Income:£15,000; Income Tax £1,705--effective income tax rate: 11.4%.

Salary/Income:£35,000; Income Tax £5,705--effective income tax rate: 16.3%.

Salary/Income: £55,000; Income Tax £11,930-effective income tax rate: 21.7%.



Salary or Net Profit £36,035, less allowance £6,035, net taxable £30,000. Income tax payable £30,000 x 20% = £6,000. Effective tax rate 17%.

Salary or Net Profit £18,035, less allowance of £6,035, net taxable £12,000. Income Tax payable £12,000 x 20% = £2,400. Effective tax rate 13%.

Salary or Net Profit £72,035, first £6,035 x 0% = zero tax; next £34,800 x 20% = £6,960; next £31,200 x 40% = £12,480: total tax payable £19,440. Effective tax rate 27%.

National Insurance

National Insurance Contributions (NIC) Rates for Employees and Employers and interaction with Tax Free Allowances

Employees and employers pay Class 1 NIC, while self employed indivduals pay Class 2 and 4 NIC; Class 3 NIC is voluntary contributions when people work overseas, etc, to maintain your record for State Pension entitlement.


The UK Employee Class 1 NIC rates are: First £5,435 x 0% rate = 0; next £34,605 11%; salary after £40,040: 1%.

The UK Employer Class 1 NIC rates are: First £5,435 x 0% = 0; all salary above £5,435: 12.8%.

For the majority of the 30 million UK workforce, the true or effective rates work out at or or depending on whether you are a high earner, middle rate earner, or a low earner:

Salary £35,435:

Employee :First £5,435 x 0% = 0; next £30,000 x 11% = £3,300 (NIC Employee); Effective employee rate 9%, not 11% ;

Employer : First £5,435 x 0% = 0 ; £30,000 x 12.8% = £3,840 (NIC Employer). As this £3,840 is an allowable business expense, the Effective employer rate 11% x 75% = 8% not 12.8%

Salalry £17,435:

Employee: First £5,435 x 0% = 0; next £12,000 x 11% = £1,320 (NIC employee); Effective rate 7.5%, not 11%.

Employer:First £5,435 x 0% = 0; next £12,000 x 12.8% = £1,536 (NIC Employer). Effective employee rate: 7.5% x 75% = 5.6% , not 12.8%.

Salary £75,435:

Employee: First £5,435 x 0% = 0; next £34,605 x 11% = £3,807; next £35,395 x 1% = £354: total £4,161 (NIC Employee); Effective rate 0.5%, not 11%.

Employer: First £5,435 x 0% = 0; next £70,000 x 12.8% = ££8,960. effective employer rate 11.9% x 75% = 9%, not 12.8%

The moral of all above calculations is that do not take the 9% employee and the 12.8% employer NIC rates at their face value.

Current NIC Rates for the Self Employed and Allowances

The UK Class 2 NIC rate payable by self employed individuals is a fixed amount of £119.60 per year.

The UK Class 4 NIC rates payable by self employed individuals are: First £5,435 x 0% rate = 0; next £34,605 8%; net profit after £40,040: 1%. (Note self employed pay 3% less NIC than employees on the £34,580 income).