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  • FIRST POST
    MikalDrey
    When am I considered a Higher Rate Taxpayer
    • #1
    • 4th Feb 11, 10:07 AM
    When am I considered a Higher Rate Taxpayer 4th Feb 11 at 10:07 AM
    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
Page 1
    • CLAPTON
    • By CLAPTON 4th Feb 11, 10:29 AM
    • 37,777 Posts
    • 26,545 Thanks
    CLAPTON
    • #2
    • 4th Feb 11, 10:29 AM
    • #2
    • 4th Feb 11, 10:29 AM
    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
  • spugzbunny
    • #3
    • 4th Feb 11, 10:39 AM
    • #3
    • 4th Feb 11, 10:39 AM
    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
    Originally posted by CLAPTON
    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.
  • MikalDrey
    • #4
    • 4th Feb 11, 11:03 AM
    • #4
    • 4th Feb 11, 11:03 AM
    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.
  • MikalDrey
    • #5
    • 4th Feb 11, 11:19 AM
    • #5
    • 4th Feb 11, 11:19 AM
    @ 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)
    • p00hsticks
    • By p00hsticks 4th Feb 11, 11:33 AM
    • 4,645 Posts
    • 4,012 Thanks
    p00hsticks
    • #6
    • 4th Feb 11, 11:33 AM
    • #6
    • 4th Feb 11, 11:33 AM
    If my Gross is above 42,475 but my Net is below 35,001 then which am I considered to be ?
    Originally posted by MikalDrey
    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)
    • CLAPTON
    • By CLAPTON 4th Feb 11, 11:40 AM
    • 37,777 Posts
    • 26,545 Thanks
    CLAPTON
    • #7
    • 4th Feb 11, 11:40 AM
    • #7
    • 4th Feb 11, 11:40 AM
    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
  • MikalDrey
    • #8
    • 4th Feb 11, 11:46 AM
    • #8
    • 4th Feb 11, 11:46 AM
    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"
    • sunshinetours
    • By sunshinetours 4th Feb 11, 12:45 PM
    • 2,769 Posts
    • 1,813 Thanks
    sunshinetours
    • #9
    • 4th Feb 11, 12:45 PM
    • #9
    • 4th Feb 11, 12:45 PM
    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
  • ceeforcat
    If you gross pay less deductions less personal allowance (normally 7475) is greater than £35000 - you are a higher rate taxpayer.
    • John_Pierpoint
    • By John_Pierpoint 4th Feb 11, 6:14 PM
    • 8,214 Posts
    • 7,375 Thanks
    John_Pierpoint
    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.
  • TC1
    Are the following considered part of your gross pay and are they taxable ?

    Housing/rent allowance

    Competency related threshold payment.

    Thanks TC1
  • Mikeyorks
    2) Housing/rent allowance

    1) Competency related threshold payment.
    Originally posted by TC1
    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
    If you want to test the depth of the water .........don't use both feet !
  • TC1
    Thanks for the reply Mikeyorks.

    I'll start doing my sums.

    Cheers again

    TC1
    • climberup
    • By climberup 4th Feb 11, 9:10 PM
    • 44 Posts
    • 33 Thanks
    climberup
    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.
    • sunshinetours
    • By sunshinetours 7th Feb 11, 9:04 AM
    • 2,769 Posts
    • 1,813 Thanks
    sunshinetours
    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.
    Originally posted by climberup
    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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