40% Higher Tax Bracket. Will this affect me?

dubl_d8
dubl_d8 Posts: 9 Forumite
in Cutting tax
I started a job 2 months ago and was being paid just below 30k. I was quite happy with this, however after some investigations I have been told that I should be on £32,400. I notice that the tax bracket for higher tax is £32,100. Does this mean that I am now in this higher bracket or do we have some allowance to counteract this? Surely if this is true then I am going to receive less than I was before.

Please advise
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Comments

  • dougk_2
    dougk_2 Posts: 1,403 Forumite
    I beleive you only pay tax on the amount above the threshold at the higher rate.
    However the 22% basic band is up to £32,400 not £32,100 for 2005/6.

    Try searching here for more info:
    http://www.inlandrevenue.gov.uk/
  • Debt_Free_Chick
    Debt_Free_Chick Posts: 13,276 Forumite
    Combo Breaker First Post
    You need to split your pay into "slices". The first slice is your personal allowance, which you should find on your Notice of Coding (the form that tells you your tax code). Assuming no adjustments to your tax code, your personal allowance is £4,895 (2005/06). You pay no tax on that slice of income.

    On the next £2,090 you pay income tax at the rate of 10%

    On the next £30,310 you pay income tax at the rate of 22%

    On everything else, you pay income tax at the rate of 40%

    If you pay contributions to an occupational pension scheme (NOT a stakeholder or personal pension plan) then you deduct those contributions from your gross pay, to arrive at your "taxable" pay.

    HTH
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
  • donsaini
    donsaini Posts: 69 Forumite
    maybe its worthwhile asking for a pay cut of £300.

    reason for this is that the net extra for you is £177 (40%tax 1%NIC)

    you have to remember that all savings are now supposed to be taxed at 40% not the 20% taken by the bank.

    however also remember that you can 40% tax relief on all pension contributions. also 40% relief on any tax deductible items needed for work

    also can you add any tax credits to your tax code

    hope that helps
  • Debt_Free_Chick
    Debt_Free_Chick Posts: 13,276 Forumite
    Combo Breaker First Post
    Bear in mind that if you have the full Personal Allowance and pay no pension contributions, you actually need to be paid £37295 (gross) to hit the 40% tax bracket.
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
  • dubl_d8
    dubl_d8 Posts: 9 Forumite
    Thank you all for your responses, I was in a state of dispair, but i do understand it now.
  • mrcow
    mrcow Posts: 15,170 Forumite
    First Post First Anniversary Combo Breaker
    donsaini wrote:
    maybe its worthwhile asking for a pay cut of £300.

    I don't get that at all!!

    I wouldn't recommend asking for a pay cut!
    "One day I realised that when you are lying in your grave, it's no good saying, "I was too shy, too frightened."
    Because by then you've blown your chances. That's it."
  • Rafter
    Rafter Posts: 3,850 Forumite
    First Post First Anniversary Combo Breaker
    No point in asking for a pay cut!

    Income tax is not like stamp duty - you don't suddenly pay 40% on all your income, just the bit above the earnings threshold.

    So £300 is still worth £180 after 40% tax.

    R.
    Smile :), it makes people wonder what you have been up to.
  • lush_walrus
    lush_walrus Posts: 1,975 Forumite
    Debt_Free_Chick wrote:
    Bear in mind that if you have the full Personal Allowance and pay no pension contributions, you actually need to be paid £37295 (gross) to hit the 40% tax bracket.


    Is that right, £37,295? not to doubt you, but I am taxed at the higher rate and earn about £2,000 less than that. Basically, Im wondering if I should contact my tax department to see why they are overtaxing me.
  • Debt_Free_Chick
    Debt_Free_Chick Posts: 13,276 Forumite
    Combo Breaker First Post
    That's for the current tax year, which only started yesterday.

    Also, what is your tax code? My calculation assumes you get the full Personal Allowance, with no deductions
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
  • YorkshireBoy
    YorkshireBoy Posts: 31,541 Forumite
    Name Dropper First Post First Anniversary
    lush_walrus wrote:
    Is that right, £37,295? not to doubt you, but I am taxed at the higher rate and earn about £2,000 less than that. Basically, Im wondering if I should contact my tax department to see why they are overtaxing me.
    I'm not 40% taxed, but likely to be fairly soon - here's my understanding of the situation...

    As DFC says, "with no deductions".
    Do you have a company car, medical insurance, or other company provided benefit etc?
    Have you underpaid tax in recent years?

    Basically, you should/might have 4895 in the left hand column of your coding notice. Any benefits (deductions - such as those listed above) would be in the right hand column. The total personal allowance is left column minus right column.

    If the right hand column is "significant", this could be why you're paying an element of 40% tax.

    If I'm wrong, someone please correct me!
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