Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
• FIRST POST
• Marty_P
• By Marty_P 7th Mar 18, 11:55 AM
• 5Posts
• 0Thanks
Marty_P
I have seen it generally stated that 40% income tax is paid on income in excess of £45,000 for tax year 2017/18. With a standard tax free allowance of £11,500, it is understood that this leaves £33,500 to be taxed at 20%.

Is £33,500 the maximum amount to be taxed at 20%, i.e. the most a person can be taxed is £6,700 at 20%?

I ask because my tax code has changed, reducing my tax-free allowance, and I want to understand what will be taxed at what rate.

Example:

With a salary of £45,000 and an allowance of £11,500, £6,700 will be taken as income tax:
£45,000 less £11,500 is £33,500 @ 20% = £6,700.

With the same salary of £45,000 and a reduced tax allowance of £10,700 (£800 less than standard); is the upper limit of £45,000 reduced by £800 to £44,200, therefore suggesting that anything in excess of £44,200 will be taxed at 40% (£33,500 @ 20% is £6,700, plus £800 @ 40% is £320 = £7,020 taxed)?

Or is £45,000 still the trigger for taxation at 40%, and therefore, anything between £10,700 and £45,000 is taxed at 20% (£45,000 less £10,700 is 34,300 @ 20% = £6,860 taxed)?

I'm sure there's a better way to ask the question. My head hurts now
Last edited by Marty_P; 08-03-2018 at 12:31 PM. Reason: Title change
Page 1
• xylophone
• 7th Mar 18, 2:23 PM
• 24,870 Posts
• 14,609 Thanks
xylophone
Try https://listentotaxman.com/

Why has your tax code been reduced?

Have you looked at your personal tax account?

https://www.gov.uk/personal-tax-account
• Linton
• By Linton 7th Mar 18, 3:33 PM
• 9,210 Posts
• 9,315 Thanks
Linton
The trigger is £33500. Your second paragraph is correct.
• lindabea
• By lindabea 7th Mar 18, 3:41 PM
• 962 Posts
• 135 Thanks
lindabea

Or is £45,000 still the trigger for taxation at 40%, and therefore, anything between £10,700 and £45,000 is taxed at 20% (£45,000 less £10,700 is 34,300 @ 20% = £6,860 taxed)?

I'm sure there's a better way to ask the question. My head hurts now
Originally posted by Marty_P
I think you're over complicating the whole issue. The 45K is still the limit on which you pay higher rate tax (ie40%) By lowering your personal allowance it means that more of your taxable income will be subject to basic rate tax - upto the 45K limit. So in your example, by lowering your PTA by £800 you will pay tax on the £800@20% which is £160 as in your example above.
Before doing something... do nothing
• HappyHarry
• 7th Mar 18, 4:15 PM
• 565 Posts
• 839 Thanks
HappyHarry
If your PA is £11,500, then:

£0 - £11,500 @ 0% = £0
£11,500 - £45,000 @ 20% = £6,700

Total tax to pay = £6,700
___________________________

If your PA is £10,700, then:

£0 - £10,700 @ 0% = £0
£10,700 - £44,200 @ 20% = £6,700
£44,200 - £45,000 @ 40% = £320

Total tax to pay = £7,020
____________________________

The basic rate tax band of £33,500 can change, i.e. if you make charitable donations or pension contributions then it can be extended.
I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
• ChuckMountain
• 7th Mar 18, 4:23 PM
• 46 Posts
• 9 Thanks
ChuckMountain
I think you're over complicating the whole issue. The 45K is still the limit on which you pay higher rate tax (ie40%) By lowering your personal allowance it means that more of your taxable income will be subject to basic rate tax - upto the 45K limit. So in your example, by lowering your PTA by £800 you will pay tax on the £800@20% which is £160 as in your example above.
Originally posted by lindabea
Sorry but you are wrong, OP is now in higher rate tax bracket

If your personal allowance is reduced then it slides the allowed income down too.

If the OP has had a PA reduced by £800 then assuming no other adjustments or income then his tax code would have changed from 1150L to 1070L to reflect the change.

As the 20% band is £33,500 and generally does not change* then the OP is now earning £800 in the 40% bracket so is taxed £320 on this.

OP total tax bill for the year will be £7,020.

If his tax code remained at 1150L his bill would be £6,700.

Plug the same numbers into listentotaxman.com as xylophone originally said.

* could be adjusted for charitable giving etc but this normally on SA

Happy Harry beat me to it
• Dazed and confused
• 7th Mar 18, 5:14 PM
• 2,342 Posts
• 1,109 Thanks
Dazed and confused
Given that the only reason the amount of the Personal Allowance can be reduced is adjusted net income in excess of £100,000 then I think it is more likely the op has had his tax code reduced, not their Personal Allowance.

And as the change to the tax code could be for a multitude of reasons I don't think it's possible to say what the overall impact would.

If the change was to include an underpayment then the op still has the full Personal Allowance and basic rate band available when the actual tax liability is caclulated at the year end.
• polymaff
• By polymaff 7th Mar 18, 7:06 PM
• 1,956 Posts
• 836 Thanks
polymaff
... I ask because my tax code has changed, reducing my personal allowance
Originally posted by Marty_P
@D&C: Another day - but the same issue. An OP's confusion about Personal Allowances and PAYE Tax Coding.

Marty_P, understand that your PA influences your PAYE Tax Code - NOT vice-versa
Last edited by polymaff; 07-03-2018 at 7:10 PM.
• ChuckMountain
• 7th Mar 18, 8:36 PM
• 46 Posts
• 9 Thanks
ChuckMountain
Yes sorry I was writing about personal allowance on another thread.

Without knowing the full details its hard to say what has reduced the tax and whether that was assumed it would recover at 20% or 40%, it could be under payment of tax, medical insurance etc. etc.

If the Tax code has changed to 1070L HappyHarry's and mine will be what tax payroll deducts. It might not be what's owed in tax though.
• Marty_P
• By Marty_P 8th Mar 18, 12:41 PM
• 5 Posts
• 0 Thanks
Marty_P
Thanks All,

listentotaxman.com enabled me to do the simple check and then the 'check in more detail' section of tax.service.gov.uk/check-income-tax/paye-income-tax-estimate clarified further.

Special thanks to HappyHarry and ChuckMountain.

As for polymaff... I really don't appreciate being patronised. If your intention is not to be helpful, but to belittle others, you can troll-off!

Have a great day everyone!
• polymaff
• By polymaff 8th Mar 18, 2:49 PM
• 1,956 Posts
• 836 Thanks
polymaff
As for polymaff... I really don't appreciate being patronised. If your intention is not to be helpful, but to belittle others, you can troll-off!
Originally posted by Marty_P
I'd be genuinely interested to know how you came to that conclusion.