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When am I considered a Higher Rate Taxpayer
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# 1
MikalDrey
Old 04-02-2011, 10:07 AM
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Default When am I considered a Higher Rate Taxpayer

Hello,

With the incoming changes to Tax etc. When am I actually considered to be a Higher Rate Taxpayer.

The Higher Rate is earnings over "£42,475"
The 40% is applicable on taxable income over "£35,001"

If my gross income is over £42,475 but my net income (due to deductions) pushes my net income under the £35,001 threshold am I still considered to be a Higher Rate taxpayer.

Benefits (specifically the change to child benefit) and various other things are dependant on whether or not you are a Higher Rate taxpayer.

Many thanks in advance
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# 2
CLAPTON
Old 04-02-2011, 10:29 AM
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tax is based on your gross salary less pension contributions

the tax rates will be

first 7475 is tax free
the next 35,000 is tax at 20%
the amount over this is tax at 40%

so you can earn 42,475 before being charged at 40% tax... if you pay into a pension then that comes off first before computing the tax
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# 3
spugzbunny
Old 04-02-2011, 10:39 AM
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Quote:
Originally Posted by CLAPTON View Post
tax is based on your gross salary less pension contributions

the tax rates will be

first 7475 is tax free
the next 35,000 is tax at 20%
the amount over this is tax at 40%

so you can earn 42,475 before being charged at 40% tax... if you pay into a pension then that comes off first before computing the tax
That is very very helpful! Thank you! I thought I would be paying 40% on anything over 35,001. I figure I felt was a bit low! Especially with the tories in!!

Last edited by spugzbunny; 04-02-2011 at 10:45 AM.
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# 4
MikalDrey
Old 04-02-2011, 11:03 AM
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I understand the mechanics of how the rates are calculated but I am unsure of the implications.

With the planned changes to child benefit "higher rate taxpayers" will lose the benefit. But if my Gross is above 42,475 but my Net is below 35,001 then which am I considered to be ?

With payroll what happens ? Will I get taxed at 40% from period 1 and have to claim back tax or will I be taxed at 20% until the point in which my salary/wages exceeds the threshold ?

I can increase my pre tax deductions to keep me under the threshold and prevent the loss of child benefit but if the figure that determines the loss is the gross figure then there is no need as I would lose it regardless.

If I am sitting staring at a form which asks if I am a Higher Rate Taxpayer which box would I tick or is it more a case of being specific to whichever figure is asked for (being gross or net) ?

I know it seems more of a worry over nothing but as my gross is teetering on the edge and will clearly be more of a consideration in the coming years. I find it important to fully understand where I sit and what I am considered to be.
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# 5
MikalDrey
Old 04-02-2011, 11:19 AM
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@ Spugz - you are.

Gross Pay - Pre Tax Deduction = Taxable Pay

42,475 - 7,475 = 35,000

Its when your Taxable Pay exceeds £35,001 that you are taxed at 40%

Pre Tax Deductions typically include
Personal Allowance
Pension + Additional Voluntary Contributions
Childcare Vouchers

there are others such as Uniform Allowance with will also reduce the amount of tax you pay. Uniform allowance will increase your tax code (personal allowance)
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# 6
p00hsticks
Old 04-02-2011, 11:33 AM
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Quote:
Originally Posted by MikalDrey View Post
If my Gross is above 42,475 but my Net is below 35,001 then which am I considered to be ?
It's neither your gross pay or net pay - it's your TAXABLE pay - whcih is your gross pay , minus any pension contributions, and then taking into account your personal tax allowance (whatever that might be)
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# 7
CLAPTON
Old 04-02-2011, 11:40 AM
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Firstly to say the the rules haven't actually been published yet and remember this rule doesn't come in until April 2013 so it's not possible to be certain.

A far a your question about paying 40% tax... if you were a 40% tax payer then your allowances are spread evenly throughout the year
so if your salary was the same each month then your take home pay would be exactly the same tax each month
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# 8
MikalDrey
Old 04-02-2011, 11:46 AM
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apologies for that incorrect use of the term net pay.

Taxable pay = gross - deductions
net pay = gross - deductions - tax

Still the question stands. If my gross is over but my taxable is under and I'm not paying 40% which am I considered to be ?

although It was kinda clear which figure I was referring too (quoted from first post)

The Higher Rate is earnings over "£42,475"
The 40% is applicable on taxable income over "£35,001"
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# 9
sunshinetours
Old 04-02-2011, 12:45 PM
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If your taxable pay is over the basic rate tax threshold then you are a higher rate payer.
if it is below teh threshold you are a basic rate payer

The thresholds change in April and the current years are not the ones quoted above if that is relevant also

Details relating to how it will work for child benefit purpses in 2013/14 onwards have not yet been detailed so you cannot answer the question if that is why it is being asked
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# 10
ceeforcat
Old 04-02-2011, 4:12 PM
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If you gross pay less deductions less personal allowance (normally 7475) is greater than £35000 - you are a higher rate taxpayer.
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# 11
John_Pierpoint
Old 04-02-2011, 6:14 PM
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Can we take it that you don't have any "unearned" income, such as interest on savings, rents, dividends from share holdings.
A lot of people do the sums in February/March and then bung some money into a pension scheme to avoid being higher paid for the year.
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# 12
TC1
Old 04-02-2011, 7:16 PM
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Are the following considered part of your gross pay and are they taxable ?

Housing/rent allowance

Competency related threshold payment.

Thanks TC1
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# 13
Mikeyorks
Old 04-02-2011, 7:51 PM
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Quote:
Originally Posted by TC1 View Post
2) Housing/rent allowance

1) Competency related threshold payment.
1) I'm assuming this simply relates to a salary increment / stage based on attaining a certain level of competency in the job? Definitely part of pay and taxable.

2) Similarly taxable ..... unless it relates to removal expenses.

http://www.hmrc.gov.uk/manuals/eimanual/EIM11307.htm
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# 14
TC1
Old 04-02-2011, 8:34 PM
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Thanks for the reply Mikeyorks.

I'll start doing my sums.

Cheers again

TC1
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# 15
climberup
Old 04-02-2011, 9:10 PM
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If you are going to be just over the higher rate limit you really must invest however much you would pay higher rate tax on into a Personal Pension, and thus convert yourself back to a basic rate taxpayer. Specially if you are claiming Child Benefit.
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# 16
sunshinetours
Old 07-02-2011, 9:04 AM
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Quote:
Originally Posted by climberup View Post
If you are going to be just over the higher rate limit you really must invest however much you would pay higher rate tax on into a Personal Pension, and thus convert yourself back to a basic rate taxpayer. Specially if you are claiming Child Benefit.
I wouldn't say must....

People seem to forget the difference between basic and higher rate when you factor in national insurance is not that much on the extra income.
Obviously if it means child benefit is removed that may be a bigger incentive

Not everyone likes pensions and unless you can put away the cash until at least 55 its not an option for everyone.

Just another side of the story
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