Update 28th May 2015:
We got paid today :D. Now I can confirm that the calculations that are stated here are correct. If you are a MC Fellow from calls 2013 or before, the numbers should add up – there are just the issues of the mobility allowance being taxed or not and the option of opting out of pension scheme of the employer. For those who are fellows of calls 2014 and onward, the principles are the same, just use the calculators for taxes when you do receive your offer letter from the employer to calculate your net pay.
Update 4th March 2015:
After receiving an official offer letter, we finally found out what is taken as tax base. The total amount of the Scholarship (without the monthly mobility allowance) is not the tax base. The tax base is the total amount minus employers contributions and minus employers pension payments. From this gross that amounts to about 45,000 pound per year, you do the tax and NI`s calculations. The text has bellow been appropriately corrected.
For the past month we have been trying to get information on our family budget in UK. In the end we had to do a lot of searching and calculating to finally get to some sort of answer on the question how the taxes and contributions apply to the Marie Curie Fellows in UK. I decided to write down what we figured out, so that I will not forgett in one year and maybe some other fellow will find these information useful.
First, you need to know that the Marie Curie Scholarship covers (that means that it will be deducted from the gross amount) all the contributions and taxes of the employee and employer. Normally in developed tax systems, only tax and employee`s social contributions are deducted from the gross salary (employer` contributions are covered from the means of the employer and do not affect the salary). Because of the difference in the nature of financing this scholarship, the fellow covers (pays for with the total amount of the allowance) also the contributions that are normally levied on employers resources. This can mean a lot of money – more than 40% of the gross amount, so take care when deciding to fund the whole domestic budget of a family with this scholarship (see also this helpful informational sheet from Oxford University: http://www.google.de/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCEQFjAA&url=http%3A%2F%2Fwww.admin.ox.ac.uk%2Fmedia%2Fglobal%2Fwwwadminoxacuk%2Flocalsites%2Fpersonnel%2Fdocuments%2Frecruitingstaff%2Fcontractscurrent%2FMarie_Curie_fellow_pensions_costs_letter_August_2013.docx&ei=5YjYVLrADIqAywOV1oLQCw&usg=AFQjCNGhAUJbO4yMbnTspNeD-jCHkfdYoA&sig2=EBzqt0cp1KsYg-ZF0jWt2A&bvm=bv.85464276,d.bGQ ).
The initial amount of MC scholarship can seem very high, but the amount that you get in your pocket can differ from state to state, depending on the states tax and social contributions amounts. Here are some details of the UK system of taxation that will help you calculate your own net salary.
One of the big questions is also if the mobility allowance is taxed in UK. We have found information that it is (with tax and National Insurance – NI contributions), but there is a lot of bad blood over this.
Because the amounts of the gross MC Scholarship can variate from year to year (also with respect to the Correction factor applied for cost of living) let us start rather with an estimated amount of wage together with the mobility allowance in the sum of 70.000 £. I like to do these calculations by myself, but you can also check the amounts on the internet automatic UK tax and NI calculator (this one made the same calculations I was able to do myself and got the same numbers: http://www.uktaxcalculators.co.uk/
First in the UK you have to make the calculations for the tax and contributions separately as these systems to not intersect. In Slovenia the taxable amount depends heavily on the amount of social contributions the employee has to pay as the contributions influence the taxable amount – this is not the case in the UK. In the UK the only allowance that influences the tax base is the general allowance in the amount of 10.000 £.
This you deduct from
70.000 45,000 £ and get 60.000 35.000£ of tax base. On this you apply the tax brackets (NOTE: the brackets change somewhat every year, so check the amounts for every applicable year):
Basic rate 20% is applied on taxable income from
£0 – 31,865
Higher rate 40% is applied on taxable income from
£31,866 – 150,000
When you put your taxable income (minus the general allowance) into the brackets, you get the yearly tax in the amount of cca.:
NATIONAL INSURANCE (pension and unemployment insurance)
Now to the NI`s. Employees NI`s are calculated from the amount
70.000 45,000£ as the tax allowance only applies to the calculation of tax and not NI`s. Here are the brackets for employee NI`s (these are calculated on weekly pay to make things interesting :D):
For salary up to 155£ you don`t pay contributions. For the salary amount between 155-815£ you pay Ni`s employee contributions of 12%. And amount above 815£ you pay contribution of 2%. Calculated using these brackets and then transferred to the yearly basis, the employee contributions amount yearly to roughly
Then you have to calculate also the employers contributions. The brackets are different. For weekly salary up to 156£ you don`t pay employers contributions. For the amount above 156£ the contribution are calculated using 13,8%. This amounts to roughly
8.560 5,155£ per year of employers NI contributions.
THE NET SUM
With these information you can now calculate the net pay:
70.000 45,000£ – 17.627 7.700£ – 4 .630 4,100£ – 8.560£ = 39.183 33,498£ (the employers contributions have already been deducted). Monthly this amounts to roughly 2,800£. From the information on the internet from some of the current Fellows they receive roughly 3.200£ per month net (in the pocket) pay. New information is that the mobility allowance will not be taxed and that means another 900 pounds can be added to the amount of net pay. I do not know if that will be the case in the end…will update when we know for sure, like legally binding sure. 😀
But there is a catch (I bet you wanted me to finish there). NI`s pay for state pension. But in the UK (opposite to the system in Slovenia) the private pension schemes are more usual and present. And here is where it gets interesting. Your host institution must be a part of a pension scheme and as soon you will start working there, they will automatically include you in this private pension scheme. As are the rules for paying the NI`s so it is with the pension scheme – you pay for employers and the employees contribution. These amount vary drastically from different pension schemes. In the Universities there is one called USS. In this scheme employee pays 6,5% and the employer 16%, but remember you have to pay for both. These two percentages mean another 1.000£ of your 3.200£ amount per month. So, you better check the information on the benefits of being a part of the pension scheme (usually you have to be part of it for a decade to even have the right to a pension). Yes, you can opt-out as only NI is obligatory and the private pension schemes are on voluntary basis. So check what benefits you will get from paying into the pension scheme for 24 months and decide if it is worth it.
But do not worry, all the tax and NI obligations are calculated and deducted from your salary and paid to the Tax Administration by the Institution you work for. Just check if they did it correctly. 😀
Oh, yeah, you are a part of National Health System (NHS) as soon as you register in UK. The system is funded through the taxes you pay and not the NI`s.
MORE USEFUL LINKS:
Update 20th May 2015:
After receiving some questions from a very nice Marie Curie Fellow Luisa, I have to write down what we figured out together.
Everything that is written above will be over-viewed once I get a look of the first pay slip for the scholarship. But what I did realize that I wasn`t precise to point out that the above numbers are for the MC Fellowship call before the 2020 agenda. It seems that the conditions of the funding changed.
Now the two year funding results to a:
Euro 134,255 (living Allowance)
Euro 14,400 (mobility Allowance)
Euro 12,000 (family Allowance)
The offer letter in UK should be around these numbers:
The Gross Living Allowance should be £38,088.06 per annum. This amount does take into account opting into the specific pension scheme applicable for Luisa`s employer pension scheme. The mobility allowance will be £456 per month (£5,472 per annum). The family allowance will be £380 per month (£4,560 per annum).
These are the gross amounts. These amounts will be taxed (employee taxes and contributions) according to UK tax laws. First problem is that I cannot find the information if the mobility and family allowance are taxed. If they are not, then monthly net pay is this:
2.415 pounds monthly net from your living allowance after taxes and contributions + the mobility and family allowance in sum of 836 pounds per month – 3.251 pound all together.
If the mobility and family allowance are also taxed (gross taxed yearly income is then 48.120,06 pounds) than the monthly net pay is this:
Both net amounts are before the opt out. Anyway, when you get your own offer letter (this is the point when you get your gross amount, your tax base), you can do the calculations on: http://www.uktaxcalculators.co.uk/