A Typical Job

The following example describes a typical job, with an average-level wage, in a typical (small/ medium-sized) company in the UK. The job and the company are fictional but, given these details of the wage, benefit package, and job environment, the calculations of tax due and of regulatory costs are real.

The company

• Sales: £18,000,000
• Profit after tax £525,000
• Workforce: 190 employees
• Business: manufacturing/ service

The job

• Holder: Derek
• Annual pay: £25,000
• Skills required: metalworking, use of power equipment
• Educational level: school leaver
• Further training: provided by employer
• Hours: 40 per week
• Holidays: 25 days annually, plus 8 public holidays
• Additional benefits: to a value of £3,648 (includes holiday bonus, attendance bonus, profit-related pay, medical insurance and life cover, pension, sick pay)

Click here (opens popup window) to see what taxes Derek pays. After all taxes are taken into account, Derek receives less than half of the total value of his package.

The company deducts income tax (£4,214) and employee's National Insurance (£2,229) from Derek's pay (£25,000) before he receives it, leaving £18,557. Then, from his take-home pay, Derek has to pay VAT on nearly all purchases, as well as petrol duty, alcohol and tobacco duties, TV licence and road tax. The Office for National Statistics estimates that these (so-called "indirect") taxes take up about 15% of the average household's gross income: in Derek's case, £3,750. In addition, Derek probably pays some £625 in council tax (average estimated by the Office for National Statistics). These additional taxes reduce his take-home pay to £14,182. Even after this, the costs of some basic items of expenditure are inflated by government policy -- for example, the European Union's Common Agricultural Policy more or less doubles the cost of a weekly food bill.