What is the effective rate?

The effective tax rate is the percentage of income subject to taxes.

What is the marginal rate?

The marginal rate of tax is a subtle but crucial concept. It represents the percentage of tax you will pay on the additional money you earn, specifically the next pound you make. While it may not seem important at your current income level, it significantly impacts your future decisions because it influences your motivation to work more or earn more money.

The theoretical maximum marginal tax rate for high earners is 47% (comprising 45% income tax and 2% national insurance) once your income surpasses £125,140. However, the situation is more complex for those earning less than £125,140 due to the following factors:

Child Benefit -Begins to be reduced when your gross income reaches £50,000. Once your gross income exceeds £60,000, you no longer receive any child benefit.

Personal Allowance - Starts to decrease when your gross income reaches £100,000 and is entirely eliminated by £125,140

Student Loan - Starts to increase when your gross income reaches the threshold specific to your plan.

Marriage Allowance - Allows you to recieve £1260 of unused personal allowance from your spouse, which disappears if you gross income is above £50,270.

Personal Savings Allowance - Allows you £1000 tax free if you are basic rate payer, £500 if you are a higher rate payer and £0 if you are an additional rate payer.

Tax Free Child Care - Allows you up to £2000 tax free if you earn below £100,000.

Employer National Insurance - For employers, the rate of National Insurance is set at 13.8% on earnings above the threshold.

Assumptions

This calculator does not take into account the additional income you gain from child benefits, interest from savings and child care. We also assume you utlize the maximum amount of tax free child care and personal savings allowance.

Typical Cases

If you claim child benefit for 3 children, without student loan. You marginal tax rate between £50k to £60k is 72% .

If you earning £50k gross, so about £41k take-home including child benefit. That is £25/hour before tax, £19/hour after tax..

What if you get a pay rise of £10k? Sounds good. That is now £30/hour, but after-tax you will be earning £21/hour. You may well not think that is worth your while.

Credit to Dan for his article that helped with this calculator.