60% marginal rate of income tax

nogoodwithmoney11111

Hi,

just getting over the shock that the upper limit of my target earnings paid to me this year will be subject to 60% rate!!!! I have a tax code of 117L as I have various benefits and a company car.

The way it was explained to me was they clawback £1 of personal allowance for every £2 earned over the threshold.

Does this mean that I will only get the effective marginal rate on the first (£1,175x2) £2,350 over the threshold or do i still get taxed at marginal rate on the full (£6,745 x 2) £13,490 above the threshold no matter what MY personal allowance is? Could make the difference of £1,000 in tax paid!!!

thanks in advance

jem16

Why don't you try playing with a few figures on this webiste and see what difference it makes.

http://listentotaxman.com/

nogoodwithmoney11111

Thanks for that link - what a great site - and an iphone app too!!

Well I dont want to start sounding like an advert for the Daily Mail but it looks like i get the full personal allowance "reversed" giving me maximum income taxed at 60% rate despite only having 1175 tax free personal allowance.

I suppose if it were the other way about everyone in that income bracket would simply reduce their personal allowance to 0 so they were not affected...........

60% income tax - in the words of Victor Meldrew "I don't believe it" (NB no copyright infringement intended)

:mad:HARRUMPPPHHHH!!!!:mad:

CLAPTON

nogoodwithmoney11111 wrote: »

Thanks for that link - what a great site - and an iphone app too!!

Well I dont want to start sounding like an advert for the Daily Mail but it looks like i get the full personal allowance "reversed" giving me maximum income taxed at 60% rate despite only having 1175 tax free personal allowance.

I suppose if it were the other way about everyone in that income bracket would simply reduce their personal allowance to 0 so they were not affected...........

60% income tax - in the words of Victor Meldrew "I don't believe it" (NB no copyright infringement intended)

:mad:HARRUMPPPHHHH!!!!:mad:

marginal rate of deduction is much higher than 60% for many people on income support ... and you probably have more left to spend when all said and done

nogoodwithmoney11111

surely not, are you saying that someone earning, say, minimum wage and getting income support pays MORE income tax on the next £1 earned than 60p?

I thought benefits were not taxed?

If so thats bonkers........

CLAPTON

nogoodwithmoney11111 wrote: »

surely not, are you saying that someone earning, say, minimum wage and getting income support pays MORE income tax on the next £1 earned than 60p?
When you start considering housing bnefit and other means tested benefit it can work out at over 100% making additional hours of work pointless

I thought benefits were not taxed?

If so thats bonkers........

Yes I'm saying that for people on low incomes, the marginal rate of deductions is greater that 60%, because the benefits one receives are clawed back... it is a problem with any means tested benefit.
Duncan Smith has commented endless on the issue


although not as bad take an example of a succesful your graduate earning say 50K... they would pay 40% tax, 1% NI (rising to 2% in april) and 9% student loan repayments ... total of 50 /51%

nogoodwithmoney11111

Blimey - that really is food for thought - I am going to research into this. A logical conclusion for some would be that you should just stay on benefits, as if you work you will get more taken away in benefits than earned in salary......what a horrendous state to be in!

To be honest I have been in a bit of a vacuum trying to sort my own finances out over the last 5 years and my current affairs knowledge is non existent. Now that I am sorted and just had a significant promotion at work am seeing it from "the other side of the fence" so to speak. I never thought I would be upset at low interest rates hitting regular savers!!!!!

Also interesting is a higher rate tax payer with a graduate loan - 50% rate - unreal.

gozaimasu

CLAPTON wrote: »

although not as bad take an example of a succesful your graduate earning say 50K... they would pay 40% tax, 1% NI (rising to 2% in april) and 9% student loan repayments ... total of 50 /51%

Well that doesn't mean they only get 50% of 50k! It's 9% of anything you earn over 15k re-payment threshold.

Although it's quite shocking using that calculator above to see that someone earning 50k per year only actually gets just over 32k. Drop that salary to 45k and you've got 30k net.

zygurat789

When you receive tax credits, and a lot of young working people do, they are reduced by 39p for every extra pound earned. This pound is taxed ar 20p basic rate and the national insurance deducted is 11p. Total 70p deducted for each extra one pound earned.
This applies to people earning fairly low salaries and paying basic rate tax.

opinions4u

A lot of people creeping in to the 40% tax band are going to feel a real pinch with child tax credits going, national insurance rising and some of the tax on company cars increasing by up to 40% in 2012/3.

The deficit needs addressing. But I do think that middle earners are picking up one hell of a bill.

zygurat789

So from the above it seems as if the lowest paid are paying tax at 70%, the middle class at 60% and the rich at 50%.
That's a tory chancellor for you.