New Tax Code, no £60 Rebate and Paying More Tax

stratty

jem16 wrote: »

And increased the tax-free allowance. Both should cancel each other out.

The increase in allowance of £600 when taxed at 20% is a rebate over the 12 months of £120 whereas the decrease in the higher rate band of £1200 when taxed at 40% results in an additional tax liability of £480.

Therefore you are £360 worse off if you are higher rate.

stratty

But your right in that its supposed to be a tax neutral move for HR taxpayers. In practice though I dont see it unless I am missing something blindingly obvious as is usually the case. Certainly with the HR wages I do at work everyone is worse off in there pay when compared to earlier months even tho the coding has increased.

jem16

stratty wrote: »

But your right in that its supposed to be a tax neutral move for HR taxpayers. In practice though I dont see it unless I am missing something blindingly obvious as is usually the case. Certainly with the HR wages I do at work everyone is worse off in there pay when compared to earlier months even tho the coding has increased.

Over the whole tax year it will work out exactly the same.


For example someone on £45k.

Before September's change;

First £5435 tax free
Next £36,000 at 20% = £7200
Next £3565 at 40% = £1426

Total tax = £8626

After September

First £6035 tax free
Next £34,800 at 20% = £6960
Next £4165 at 40% = £1666

Total tax = £8626

What I haven't worked out is the effect that changing it all half way through the tax year will make on the remaining 6 months. It may well be that you paid less in the first 6 months and will pay slightly more in the second six months.

stratty

I think that is the killer jem that it has been applied part way through the year so at this moment in time the HR taxpayers are indeed worse off. Like you say though over the year it will balance out but still difficult to appease employees when there pay has gone down.

jem16

stratty wrote: »

The increase in allowance of £600 when taxed at 20% is a rebate over the 12 months of £120 whereas the decrease in the higher rate band of £1200 when taxed at 40% results in an additional tax liability of £480.

Therefore you are £360 worse off if you are higher rate.

Not thw way it works though.

The previous higher rate tax threshold was £41,435 - £36,000 plus £5435.

The new higher rate tax threshold is £40,835 - £34,800 plus £6035.

So basically the personal allowance has increased by £600 and the rate at which you pay higher rate tax has decreased by £600.

HMRC explain it better;

"If you’re a higher rate taxpayer
The changes announced by the Chancellor are designed to benefit basic rate taxpayers only. Higher rate taxpayers will pay the same amount of tax as before. This is because while the basic Personal Allowance has been increased by £600, the threshold at which you start to pay higher rate tax has been reduced by £600 - achieved through a £1,200 reduction to the basic rate tax band."

jem16

stratty wrote: »

I think that is the killer jem that it has been applied part way through the year so at this moment in time the HR taxpayers are indeed worse off. Like you say though over the year it will balance out but still difficult to appease employees when there pay has gone down.

Give them the worked example from HMRC.


http://www.hmrc.gov.uk/employers/epa-understanding.htm#5