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40% Higher Tax Bracket. Will this affect me?
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# 1
dubl_d8
Old 07-04-2005, 10:46 AM
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Default 40% Higher Tax Bracket. Will this affect me?

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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# 2
dougk
Old 07-04-2005, 11:06 AM
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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/
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# 3
Debt_Free_Chick
Old 07-04-2005, 11:53 AM
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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
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# 4
donsaini
Old 07-04-2005, 12:14 PM
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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
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# 5
Debt_Free_Chick
Old 07-04-2005, 12:29 PM
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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.
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# 6
dubl_d8
Old 07-04-2005, 12:46 PM
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Thank you all for your responses, I was in a state of dispair, but i do understand it now.
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# 7
mrcow
Old 07-04-2005, 4:02 PM
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Quote:
Originally Posted by donsaini
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!
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# 8
Rafter
Old 07-04-2005, 4:27 PM
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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.
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# 9
lush walrus
Old 07-04-2005, 4:57 PM
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Quote:
Originally Posted by Debt_Free_Chick
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.
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# 10
Debt_Free_Chick
Old 07-04-2005, 5:16 PM
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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
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# 11
YorkshireBoy
Old 07-04-2005, 10:21 PM
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Quote:
Originally Posted by lush walrus
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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# 12
isasmurf
Old 07-04-2005, 11:20 PM
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Quote:
Originally Posted by lush walrus
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.
Easiest way to find out if you should be paying 40% tax, is to take your tax code, remove the letter and stick a 5 on the end, e.g. if your tax code is 324T then remove the T and put 5 on the end to make 3245. This is your personal allowance, the amount you earn before paying tax.

Add 31,400 (for pay up to 5th April 05) or 32,400 (for pay from 6th April 05) to your personal allowance. Is your salary higher than this? If it is then you are a higher rate taxpayer.
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# 13
Debt_Free_Chick
Old 08-04-2005, 5:36 AM
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Very well put, isasmurf
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# 14
lush walrus
Old 08-04-2005, 8:56 AM
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Wow thanks guys, I have to look into this as Im not entirely sure what I earn only that my accountant informed me I was paying 40% tax and so should look into having a pay cut and having my travel paid this year which is 3,000. Im not very good at keeping abreast of these things! Originally when I started my job, I was still self employed, then I decided to work full time for my employer who offered me a salery of 24,000 before tax ie they paid all tax and national insurance contributions and I received 2,000 a month, which my mortgage advisor worked out as me earning approx 30,000-32,000 including deductions. I dont pay into any pensions or health schemes only pay tax and NI.

I had a pay rise of 2,000 (again with them paying the tax for me on top of that) and then Im just about to get 3,000 (excluding tax paid on top by them).

Aaaaarg I dont know its all too confusing for me, all I know is that I had to pay 40% tax on everything outside of work.
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# 15
Spendless
Old 08-04-2005, 9:31 AM
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Quote:
Originally Posted by isasmurf
Easiest way to find out if you should be paying 40% tax, is to take your tax code, remove the letter and stick a 5 on the end, e.g. if your tax code is 324T then remove the T and put 5 on the end to make 3245. This is your personal allowance, the amount you earn before paying tax.

Add 31,400 (for pay up to 5th April 05) or 32,400 (for pay from 6th April 05) to your personal allowance. Is your salary higher than this? If it is then you are a higher rate taxpayer.
Does this work on a negative tax code also? Husband has a K tax code.
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# 16
donsaini
Old 08-04-2005, 12:28 PM
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Quote:
Originally Posted by Rafter
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.
I Only wrote about the 300 paycut earlier, because at the time i mistakenly thought that poster might have been just over the 40% tax level. forgot personal allowance you see.

the reason for the pay cut was if poster had a significant amount of savings that would be taxed at 40%, ie double the tax they are paying at the moment

also dont forget to factor in gordon brown's 1% stealth tax...NIC. would make itt 177


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# 17
mrcow
Old 08-04-2005, 12:50 PM
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Quote:
Originally Posted by donsaini
the reason for the pay cut was if poster had a significant amount of savings that would be taxed at 40%, ie double the tax they are paying at the moment
They'll still only pay 40% on whatever is above the threshold, no matter if it comes from employment earnings or interest earnings.

A pay cut would just be reducing the amount of money coming in (regardless of what rate it's taxed at).
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# 18
Plasticman
Old 08-04-2005, 6:36 PM
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Quote:
Originally Posted by donsaini
also dont forget to factor in gordon brown's 1% stealth tax...NIC. would make itt 177
I thought that the upper earnings limit for NI was below the limit for 40% tax?
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# 19
Pam17
Old 08-04-2005, 6:56 PM
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Spendless unfortunately with a K code you have to add the figure to your income as your husbands deductions are more than his personal tax free allowance and this gives a negative figure. I assume he has either a large underpayment being collected or receives untaxed interest or benefits in kind like a company car or medical insurance etc.

K580 means 5700 is added to your income to give a higher income figure ie if your husband earns 34000 and his code is 580 then he is taxed as if he has earned 34000 + 5700 = 39700.
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# 20
Spendless
Old 09-04-2005, 1:14 PM
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yes his negative code is caused by benefits in kind, company car, petrol, and BUPA.

The code is K282 so what should i add on to his salary? Is it 2820?
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