To be shocked at the difference in take-home pay between £30k and £90k

[PAYE]

So many times on MN, we hear people telling high earners to stop complaining. It appears that people think that someone on 90k has three times as much money as someone on £30k. However, progressive taxation and the benefits system means that there is surprisingly little difference in take-home pay between 'low' and 'high' salaries.

I used the Listentotaxman and EntitledTo websites to look at the difference in net pay and benefits at every salary level from £25k to £130k. I assumed a single earner with two kids, £1.5k in rent and £1.5k in childcare costs, a student loan and 5% autoenrollment pension contributions.

The light blue bars are for monthly post-tax income from Listentotaxman.com. This assumes no benefits and shows take-home pay rising with income.

The dark blue show post-tax income after benefits. The benefits are taken from Entitledto and added to the post-tax income.

This shows that

1. If you have kids and pay rent, there is little difference in take-home pay regardless of the actual salary
2. The net monthly income for someone on £25k in London with 2 kids, is the same as for a £90k salary without benefits.
3. For the person in my assumption, their post-tax and benefit income would be just 15% higher at £90k than at £30k
4. Monthly income is very flat at all income levels, however, someone earning £30k on universal credit is allowed to complain, but someone on £80k is told to shut up, even if their take-home pay is lower.

The reason take-home pay is so flat is due to:

1. tax-credits/universal credit topping up salaries
2. Housing allowance paid to private landlords
3. child benefit being removed at £60-80k
4. Childcare support removed at £100k
5. Removal of personal allowance from £100-120k.

While no one wants children in poverty, what is the incentive to work harder if take-home pay is the same? Why increase working hours, go for that promotion or take that extra qualification?

AIBU to be shocked at the difference?

On £168k a year, less childcare

£0-100k you earn £68521 (a ~32% rate of tax)

£100-168k you earn £32,272 (a ~53% rate of tax)

but… you also might lose £14k of childcare (free hours + tax-free childcare).

So £100-168k you actually earn £18k - which is closer to a 75% rate of tax.

And you can’t contribute more than £60k to pension, so you can’t avoid it.

edit: updated to make figures to £168k, as I did them to £161k.

When my children were younger, I used to find it hard that I was doing a responsible job (albeit part time, but bloody stressful) and lots of the playground mums has almost as much spare money and much more time. However, as children grow older, childcare costs disappear, but also benefits disappear and now there is a huge disparity in our incomes and futures. I will be retiring with a decent pension and a paid off house, whereas the playground mums will be living in unstable accommodation with small incomes. So, there is a reward in the end. Hang in there, high earners!

Can't you up your pension contributions to bring you back down to under 100k?

I can avoid nearly all of it. This is where I find the way the numbers are juggled so weird. You rightly note I can only put 60k in a pension but then say I’m “only” earning 18k over 100k. Actually it’s more like 4k on the additional 8k.

I don’t have childcare costs but if I did I would just reduce my pay by 8k if that meant I was better off overall. Honestly the way the nurseries handle the “free” hours I’m not convinced I would be by the way. The

Reducing your pay by £8k so you can salary sacrifice ~40% of your income, to claim childcare costs to avoid paying a tax rate of ~80%+ on your income is stupid though.

You have no childcare costs. Bully for you - you earn ~£32k between £100-168k.

I do have childcare costs. I earn ~£18k between £100-168k as a result.

That’s a big incentive to work less - as you say, you would reduce your pay in this situation despite being in the top 1% of earners in Britain. That’s complete madness.

I’m not in that situation so haven’t run the numbers. I do pay maximum into my pension because I’m playing catch up on earlier crap contributions.

I’m on a very low wage and work part time, and I can’t apply for any benefits because I live with my partner who has a large amount of savings.
He’s full time but also on a low wage.

We really do not earn much- we would have to burn through all his savings before we would get any top ups, which would be stupid. Someone on £90,000 would earn life changingly more money than both of us combined, so these top ups don’t hold true for everyone

They hold true for hardly anyone. It’s deliberate cherry picking of very specific circumstances to tell a misleading story.

This is a reallly great piece of analysis. Would you be willing to share your spreadsheet with actual numbers so we can see the calculations.

There's a reason this country's benefit bill is 25% of all spending - and it's this.

No surprise the UK has such horrible productivity - absolutely no incentive to bother.

It really isn't a great piece of analysis, it's a very particular extreme scenario selected, others have also said the numbers are wrong.

The "benefit bill" you identify? More than half of it is pensions.

Demonstrating you don't understand the issues at all.

Funny how all these high earners demonstrate a huge lack of understanding about most things.

How do you know I'm a high earner?

It is an interesting and useful piece of analysis by a layperson based on one scenario not all.

It's not official ONS data and the OP isn't a statistician so it's not perfect but is indicative.

The OP carefully selected the scenario to make it extreme.

The OP assumption was £1500 for rent, so at 60 the person on £90k would still be paying rent...

The OP assumptions are way off. They were set to achieve an outcome to prove a pre decided point.

Single parents are a tiny number of people? Not sure that statistics back that up. And don't forget, any CMS isn't taken in to account for benefits purposes.

Single mothers earning over 100k are a very tiny amount of people.

In fact this issue of over 100k and losing childcare benefits only impacts 2% of parents.

This "tiny amount of people" that you don't seem to care about, however, contributes the most to the tax man. It sucks to contribute so much, yet have the public neglect you in times of greatest need because you are "tiny minority".

Income tax payments are concentrated amongst those with the largest incomes. The 10% of income taxpayers with the largest incomes contribute over 60% of income tax receipts.

The top 1% of income tax payers contributed 27% of income tax receipts.

commonslibrary.parliament.uk/research-briefings/cbp-8513/#:~:text=Income%20tax%20payments%20are%20concentrated,60%25%20of%20income%20tax%20receipts.&text=The%20Institute%20for%20Fiscal%20Studies,much%20households%20pay%20in%20tax.

"contributes most to the tax man"

Only if you only count income tax, but then we don't so this is BS.

Oh this 100k cut off? Impacts 2% of all parents.

So yes a tiny number of people.

Single parents earning over 100k renting in London with children in nursery.

What about higher salary jobs tending to come with more benefits in terms of private medical for your family, dental, bike 2 work, benefits hubs with discounts on basically anything, death in service payment to beneficiaries etc.

Also, if you're on a higher salary more money will be put into your pension. Higher salary jobs may also come with the benefit of larger employer contributions. Higher salary jobs usually give bonuses, which you can put into your pension directly and pay no tax on.

Given all this, retiring comfortably at 55 is very possible and giving a high standard of living... you'd still have to wait 13 years to cash in your state pension though!

why shouldn't I? I spent 10 years paying NI and tax, why shouldn't I get back what i put in? by the time i retire they'll probably abolish pension anyway. It's also £300 extra a month without calculating childcare costs as I luckily have help from family for childcare.(part of the reason i don't want to go FT too as my child can't cope in nursery FT and i don't want to burden family who have their own problems but just want to help me regardless).

FYI If i had to use a nursery full time I would be making a loss. Although we do get some funded hours now thanks to rishi sunak the bill is still hefty (£90 per day).

My husband is a high earner, and is taxed to the hilt. He’s always saying that what he comes out with at the end of the month just basically isn’t worth the effort he has to put in for that salary. Sometimes we don’t see him all week as he’s off all over the country sorting out issues, does a 60 hour week but still gets paid his salary with no overtime.

He’s therefore working 20 hours a week for nothing. Oh and he gets a bonus at Christmas - of which after tax he comes out with about 25% of it. People don’t realise how over taxed this income band is, and don’t even get me started on company car tax. After four years of having a co car we worked out that you pay more in tax from the ‘benefit’ than if you’d have bought the bloody thing yourself. It’s madness that we can’t afford to have a company car !!!!!!!

If we're having a contest, I've been a net contributor for around 20 years and haven't claimed any benefits. Should I reduce my hours too? Who will pay then? Benefits are supposed to support those in society who need our support. By reducing your hours when you could work full time and claiming benefits, you are not a net contributor and reduce money available for those lives depend on benefits. Benefits should not be available to fund your lifestyle choice.

How on earth is he losing 75% of his bonus in tax?