Q&A: What you pay and what you get back

Are the calculator's results unique to my household?

No, the results are illustrative. Based on the data you have entered for your household, the calculator works out which one of 10 groups - or deciles - it belongs to. The first decile has the least disposable income, the tenth has the most. The overall balance figure, and those on taxes paid and benefits received, are averages for each decile based on figures compiled by the Office for National Statistics.

However, the figures for each household member's income tax and National Insurance payments are more tailored to that individual - but they do not constitute individual tax advice.

Remember, the result is a snapshot and households can move between deciles as their circumstances change.

Why do I get a higher figure for my disposable income than my original income?

This can happen if the figures entered are for a household with just one person. It is down to the way the figures are weighted to allow comparisons of spending power across households with the same disposable income, but different numbers of people to support.

It works like this. If £15,000 is entered for a one person household, income tax and National Insurance are removed, leaving £12,562.

Each household is then weighted to allow for comparisons between single person households and large families. More detail is available below, under the header - "The calculator works out a figure for equivalised disposable income - what does that mean?"

In this case the weighting for a single person is 0.67 - on a scale used by the ONS and OECD. Disposable income is divided by this figure to produce the weighted, or equivalised version used by economists to help represent the greater spending power that small households have in comparison to large households, when both of them have the same disposable income.

So £12,562 divided by 0.67 comes to - £18,749, a higher figure than the one originally entered.

If the same post-tax figure of £12,562 was used for a two person household the weighting would be different. The first adult is 0.67 (as above), the second adult is 0.33. These figures added together come to 1. Then £12,562 is divided by 1 to give £12,562, a lower figure than that originally entered.

Why can I only enter one source of income into the calculator?

There are many different income sources and taxes that could have been employed to calculate an individual's net income.

However, it is not possible for us to cater for every individual circumstance, so for the purposes of this calculator we have assumed one income source and only adjusted for employment status, age and gender which changes the amount of income tax and National Insurance that is paid.

Why is age included?

This information is requested because income tax allowances can vary depending on age.

Why is gender included?

Gender affects the tax allowance of pensioners, as women stop paying National Insurance before men.

Do I have to enter my child benefit payments into the calculator?

No. If a household has children then child benefit is automatically added into the equation. This cash benefit is not taxed and its take up is very high.

Which taxes are included in the final figures?

The figures are averages for each decile and they are compiled from a range of direct and indirect taxes, including income tax, National Insurance, council tax and VAT. A full list is available on the right. So, this figure may include taxes you do not pay - such as the tax on cigarettes if you are a non-smoker.

Which benefits are included and what's the difference between cash benefits and benefits in kind?

Which taxes and benefits are included?

DownloadData from the Office for National Statistics [61.5kb]

Many benefits have been included in this single figure. They fall into two main types, cash benefits and benefits-in-kind. Cash benefits include jobseeker's allowance, pensions and child benefit, which are paid directly to recipients. The benefits-in-kind represent spending on public services including health, education and travel subsidies. Again, the figures are an average for households within a particular decile, so you may not have children in school and think that nothing is spent on your behalf in terms of education, although it is included in the calculations. A full list of the benefits included is available on the right. It does not include spending on defence and international aid.

Does the BBC keep the data I have entered into the calculator?

No. Personal data entered into the calculator never reaches the BBC.

What is disposable income?

Disposable income is the money leftover once direct taxes have been taken out of a gross income. In this case it is calculated by household, not by individual.

Why are the final figures based on household disposable income?

This is to enable different households to be compared more readily.

The calculator works out a figure for equivalised disposable income - what does that mean?

Equivalising the figures is a calculation used by economists for making the spending power of different households easier to compare. Here's a quick example: a couple living together with no children and a disposable income of £20,000 a year will have more spending power than a couple with the same disposable income who have three children to support.

Modified-OECD equivalence scale

  • First adult - 0.67
  • Other adults - 0.33
  • Children under 13 - 0.20
  • Children 14-18 - 0.33

Equivalising weights different members of a household to take this difference in spending power into account. Different weighting models are available but the modified-OECD scale has been used in this case. See table opposite. Each household member's scale is added together, and then the household's disposable income is divided by that number.

So in the example cited above using the scale in the table, the couple with £20,000 a year in disposable income would divide this figure by one to create an equivalised disposable income of £20,000. But the couple with three children have a scale of 1.6, leaving them a much lower equivalised disposable income of £12,500.

How is the calculation made?

As a first step a gross household income is worked out as the user enters the incomes of all the different individuals they live with.

How to calculate net income

DownloadData from PwC [48kb]

Each individual's gross income is then turned into a net income by taking out income tax and National Insurance. Help calculating this part of process was provided by PwC.

Once all the net incomes in the household are known they are added together. This is the total income for the household after direct taxes.

It is then necessary to calculate the household's "equivalised" disposable income, see above.

All the households in the UK are divided into 10 equal groups, or deciles, based on household incomes. Each decile therefore represents 10% of the population. The 10% of households with the least disposable income are in the first decile, those with the most are in the tenth decile.

After working out a figure for a disposable income, the calculator places a household into one of the 10 deciles. Averages of the taxes paid and the benefits received for each decile have been calculated by the ONS - the calculator simply matches a user's data with the relevant decile to produce its results.

What sources were used?

The gross to net calculation formula was provided by PwC. The Organisation for Economic Co-operation and Development (OECD) equivalisation formula was then used to calculate household disposable income. The data on average incomes, taxes and benefits for all households in the UK is from the ONS, 2009-2010, the most recent available.

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