Marginal tax applicable to various income segments for a lone parent with one child,
shown with and without an outstanding student loan

This is the tax rate applicable to additional income within each band, not the tax on all income.

 

Income band Event Tax NI WTC SLC PA +SLC -SLC
£0 - £6,420   0 0 0 0 0 0 0
£6,420 - £7,091 Tax credit withdrawal begins 0 0 41 0 0 41 41
£7,091 - £7,480 NI primary threshold 0 12 41 0 0 53 53
£7,480 - £15,000 Basic tax deductions start 20 12 41 0 0 73 73
£15,000 - £25,347 SLC repayments commence 20 12 41 9 0 82 73
£25,347 - £42,480 Tax credit fully withdrawn 20 12 0 9 0 41 32
£42,480 - £42,601 Higher rate of tax starts 40 12 0 9 0 61 52
£42,601 - £100,000 NI upper earnings limit 40 2 0 9 0 51 42
£100,000 - £114,961 PA withdrawal begins 40 2 0 9 20 71 62
£114,961 - £150,000 PA fully withdrawn 40 2 0 9 0 51 42
Above £150,000 Additional tax rate 50 2 0 9 0 61 52

 

Key: Tax PAYE deduction
  NI National Insurance deduction
  WTC Tax credit withdrawal
  SLC Student loan repayment
  PA Personal Allowance withdrawal rate
  +SLC Effective marginal rate including student loan repayment
  -SLC Effective marginal rate excluding student loan repayment

 

It may be seen that the most lucrative income band for a lone parent with one child is from £25,347 to £42,480.

If no student loan is due, the most punitive income range is £7,480 to £25,347, where 73% of the pay for any additional hours of work is taken in some form of tax. At minimum wage (£5.93 ph) this would apply to anything in excess of 24 hours per week. At the proposed Living Wage (£7.20 per hour) it would apply to everything over 20 hours per week.

To put it plainly, someone trying to 'work their way out of poverty' - as David Cameron suggests they do - by putting in extra hours at work, might gain as little as £1.07 an hour if they have a child to support and a student loan to repay.

 

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