New Higher Rate Taxpayer

dmcconachie

they are telling me earnings over 34,800 are higher rate. I have a non-contributory pension so nothing to deduct from gross pay presumably

jem16

dmcconachie wrote: »

they are telling me earnings over 34,800 are higher rate.

Technically they are correct. However to be exact it is taxable income over £34,800 plus the personal allowance that is subject to 40% tax. You have to deduct your personal allowance from your gross income to get your taxable income at whatever rate. Do remember to include gross interest and dividend payments though.

I have a non-contributory pension so nothing to deduct from gross pay presumably

That's correct.

dmcconachie

interest and dividends are negligible. Gross pay and taxable income both appear to be 38k!? No sign of a personal allowance on the payslip other than quoting the tax code.

jem16

dmcconachie wrote: »

Gross pay and taxable income both appear to be 38k!?

Correct if there is no pension deductions to reduce it.

However the first £6035 is tax-free for most people. In your case with a tax code of 540L that is £5405 (you must have something which is reducing your allowance). So you have to have taxable income of £34,800 plus £5405 which is £40,205 before you have to pay higher rate tax.

No sign of a personal allowance on the payslip other than quoting the tax code.

The tax code is your personal allowance minus the end digit.

dmcconachie

which is exactly how i understood it yet my earnings over 34.8 have been taxed at 40%. Given the size of company i work for and their steadfast response i presumed i must have been missing something. Now i've the whole weekend to wait for clarification.

jem16

dmcconachie wrote: »

which is exactly how i understood it yet my earnings over 34.8 have been taxed at 40%.

Are you sure this is what has happened? If you would like to post figures this can be checked.

dmcconachie

total taxable ytd 36779.67
Total tax 6972.00
Total payments march09, 7191.66
NI D EE march09, 308.38
Tax march09, 2116.00
Total deductions mar09, 2424.38

jem16

dmcconachie wrote: »

total Total payments march09, 7191.66
NI D EE march09, 308.38
Tax march09, 2116.00
Total deductions mar09, 2424.38

Does March's payment include a bonus or have you not been in this job for the whole of the tax year?

dmcconachie

well spotted. March did indeed include a bonus

jem16

That's why you will have paid some tax at 40% in March because of the unusually high March payment.

Each month you get one twelfth of your tax-free allowances and one twelfth of each tax band so the first £450.42 of that £7191.66 would have been tax-free. The next £2900 would have been taxed at 20%. Then the next £3841.24 would have been taxed at 40%.

So basically;

£450.42 = tax-free
£2900 @20% = £580
£3841.24 @ 40% = £1536.496

Total tax for March = £2116.496 which fits in with your payslip.

If this had happened earlier in the tax year your next month's pay would have seen that overpayment of tax adjusted and you would have got it back. However if you are paid monthly that won't happen now as your next pay will take you into the new tax year.

You will have to apply to HMRC for a tax refund now. You should have paid £6275.34 in tax over the whole year and you have paid £6972 so you are due a rebate of £696.66.

It's not your employer's fault though as they have applied the tax tables correctly. It was your March's bonus that made you a higher rate taxpayer for that one month only. However over the year you have remained a basic rate taxpayer.