London Daily

Focus on the big picture.
Friday, Jun 20, 2025

The universal credit claimants effectively paying top tax rates

The universal credit claimants effectively paying top tax rates

The government has cut the amount of benefits universal credit claimants lose if they earn money.

About 40% of claimants are working. And the taper rate, as it is known, has been cut from 63p to 55p - for each £1 earned.

But this can still leave claimants effectively paying very high rates of tax.

In fact, they can end up taking home a smaller proportion of an extra £1 earned than someone earning £150,000 a year.

Here, are five examples of workers paying very high effective tax rates.


Before the chancellor cut the taper rate, a universal credit claimant earning £9,000 a year from a part-time job would be taking home 37p of an extra £1 earned.

Now, that rises to 45p - but that is still the equivalent of a pretty high tax rate.


Now consider an employee, for example a parent, earning enough to pay income tax - so at least £12,570 a year - but still entitled to universal credit.

Even with the lower taper rate, they are still taking home only 31p of an extra £1 earned.

The taper rate is applied after income tax and National Insurance have been paid, which is why, in this example, it is taking 37p of an extra £1 earned and not 55p.

Income tax rates and bands are slightly different in Scotland. There is a 19% starter rate for income tax between earnings of £12,570 and £14,667. But in this case, that would still leave our worker taking home 31p of an extra £1 earned.

Child benefit is paid to families to help with the costs of raising children.

It is £21.15 a week for the first child and £14 a week for each additional child.

But the benefit is withdrawn gradually for those earning between £50,000 and £60,000.

Consider someone with three children, earning £50,500 a year.

The loss of child benefit means for an extra £1 earned, they take home 32p.


The higher rate of income tax in Scotland is 41%, so our worker with three children, earning £50,500, would keep 31p of an extra £1 earned.

In Scotland, people start paying the 41% higher rate of income tax when they are earning £43,663 a year.

In the rest of the UK, they start paying a 40% higher rate at £50,271 a year.

But National Insurance rates are the same throughout the UK, which means a worker in Scotland earning between £43,663 and £50,271 would be paying both the higher rate of income tax and the 12% higher rate of National Insurance at the same time, meaning they take home only 47p of an extra £1 earned.

In the rest of the UK, employees earning that much would be paying only 20% income tax, so would take home 68p of an extra £1 earned - 21p more than their Scottish counterparts.

People do not have to start paying income tax until they are earning more than £12,570 a year.

This is called the personal allowance.

But the personal allowance is withdrawn at a rate of £1 of allowance for every extra £2 earned above £100,000.

So those earning more than £100,000 a year start paying tax on part of their earnings they did not previously have to pay tax on.

And this means someone earning between £100,000 and £125,140 a year would take home 38p of an extra £1 earned. In Scotland, it would be 37p.


All of these people are taking home less of an extra £1 earned than somebody earning more than £150,000 and paying what is supposedly the top rate of tax.

That person would take home 53p of an extra £1 earned.

Bear in mind all of these figures are the current rates - National Insurance rates will be rising in April.

We asked the Treasury why some workers pay much higher rates of tax than people earning considerably more but have not received a reply.

Cliff edges


In all the examples above, somebody earning an extra £1 still gets to keep some of this extra money - but there are situations in which earning an extra £1 could actually make someone worse off overall. These are known as cliff edges.

For example, if you earn less than £50,270 and your husband, wife or civil partner earns less than £12,570, they can use marriage allowance to transfer £1,260 of their income tax personal allowance to you.

That would mean you no longer needed to pay income tax on £1,260 of your earnings, saving you £252 a year.

But if you earned an extra £1, putting you on £50,271, you would no longer be eligible for marriage allowance, leaving you almost £252 a year worse off.

In Scotland, the cliff edge would be at £43,662 a year.

Cliff edges also occur with other schemes, including the personal savings allowance and tax-free childcare.

Newsletter

Related Articles

0:00
0:00
Close
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Iranian Military Officers Reportedly Seek Contact with Reza Pahlavi, Signal Intent to Defect
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
Vietnam Emerges as Luxury Yacht Destination for Ultra‑Rich
Plans to Sell Dutch Embassy in Bangkok Face Local Opposition
China's Iranian Oil Imports Face Disruption Amid Escalating Middle East Tensions
Trump's $5 Million 'Trump Card' Visa Program Draws Nearly 70,000 Applicants
DGCA Finds No Major Safety Concerns in Air India's Boeing 787 Fleet
Airlines Reroute Flights Amid Expanding Middle East Conflict Zones
Elon Musk's xAI Seeks $9.3 Billion in Funding Amid AI Expansion
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
Israeli Airstrike Targets Iranian State TV in Central Tehran
President Trump is leaving the G7 summit early and has ordered the National Security Council to the Situation Room
Taiwan Imposes Export Ban on Chips to Huawei and SMIC
Israel has just announced plans to strike Tehran again, and in response, Trump has urged people to evacuate
Netanyahu Signals Potential Regime Change in Iran
Juncker Criticizes EU Inaction on Trump Tariffs
EU Proposes Ban on New Russian Gas Contracts
Analysts Warn Iran May Resort to Unconventional Warfare
Iranian Regime Faces Existential Threat Amid Conflict
Energy Infrastructure Becomes War Zone in Middle East
UK Home Secretary Apologizes Over Child Grooming Failures
Trump Organization Launches 5G Mobile Network and Golden Handset
Towcester Hosts 2025 English Greyhound Derby Amid Industry Scrutiny
Gary Oldman and David Beckham Knighted in King's Birthday Honours
Over 30,000 Lightning Strikes Recorded Across UK During Overnight Storms
Princess of Wales Returns to Public Duties at Trooping the Colour
Red Arrows Use Sustainable Fuel in Historic Trooping the Colour Flypast
Former Welsh First Minister Addresses Unionist Concerns Over Irish Language
Iran Signals Openness to Nuclear Negotiations Amid Ongoing Regional Tensions
France Bars Israeli Arms Companies from Paris Defense Expo
King Charles Leads Tribute to Air India Crash Victims at Trooping the Colour
Jack Pitchford Embarks on 200-Mile Walk to Support Stem Cell Charity
Surrey Hikers Take on Challenge of Climbing 11 Peaks in a Single Day
UK Deploys RAF Jets to Middle East Amid Israel-Iran Tensions
Two Skydivers Die in 'Tragic Accident' at Devon Airfield
Sainsbury's and Morrisons Accused of Displaying Prohibited Tobacco Ads
UK Launches National Inquiry into Grooming Gangs
Families Seek Closure After Air India Crash
Gold Emerges as Global Safe Haven Amid Uncertainty
Trump Reports $57 Million Earnings from Crypto Venture
Trump's Military Parade Sparks Concerns Over Authoritarianism
Nationwide 'No Kings' Protests Challenge Trump's Leadership
UK Deploys Jets to Middle East Amid Rising Tensions
Trump's Anti-War Stance Tested Amid Israel-Iran Conflict
Germany Holds First Veterans Celebration Since WWII
U.S. Health Secretary Dismisses CDC Vaccine Advisory Committee
Minnesota Lawmaker Melissa Hortman and Husband Killed in Targeted Attack; Senator John Hoffman and Wife Injured
Exiled Iranian Prince Reza Pahlavi Urges Overthrow of Khamenei Regime
×