Maximum Income Before 40%

JimmyTheWig

Remember that this is an incremental tax. (Unlike stamp duty, for example.)
If you earn £1 over the limit then you'll pay 40% on that pound and that pound only. You'll still only be paying 20% on the rest (and you'll still be paying no tax on the first 6475).

Basically, what I'm saying is that if you are asking this to make sure you don't go into the 40% bracket, then don't worry.

Cortinaa_GTR

But doesn't my company car reduce my non taxable amount?

I'm looking at company cars at the moment and they all have a 20%, 40% & 50% BIK values which is what was causing me the worry. The 40% + values are quite scary but this does seem to make sense that I'd only be hit with 20% rate.

Out of interest, what changes in the next tax year that will affect me then?

suso

Parnott wrote: »

But doesn't my company car reduce my non taxable amount?

I'm looking at company cars at the moment and they all have a 20%, 40% & 50% BIK values which is what was causing me the worry. The 40% + values are quite scary but this does seem to make sense that I'd only be hit with 20% rate.

Out of interest, what changes in the next tax year that will affect me then?

It was proposed at the last budget that the personal allowance will rise to 7475 per annum, (an increase of 1000 pound)

However the amount you can earn at basic rate tax will be lowered by 1000 pound to 36400, the result is still that you start to pay higher rate tax when your earnings go over 43875 (same as this year and last year)

opinions4u

suso wrote: »

It was proposed at the last budget that the personal allowance will rise to 7475 per annum, (an increase of 1000 pound)

However the amount you can earn at basic rate tax will be lowered by 1000 pound to 36400, the result is still that you start to pay higher rate tax when your earnings go over 43875 (same as this year and last year)

Page 39 of this document says:

the basic rate limit will be reduced by £2,500

In other words, what they giveth with the £1,000 extra personal allowance (value £200) they have taken away from many middle earners by shoving them in to 40% tax.

JimmyTheWig

opinions4u wrote: »

In other words, what they giveth with the £1,000 extra personal allowance (value £200) they have taken away from many middle earners by shoving them in to 40% tax.

But as per my earlier comment, being "shoved" into paying 40% tax isn't really a problem. You are only taxed at 40% on the part of your wages that are over the threshold.
So it means that current higher tax payers won't see any of the £200 value from the personal allowance change. Some who are currently close to the 40% bracket will see some but not all of this £200 pounds.

Cortinaa_GTR

Hi guys. All responses appreciated. Can I run this past you to see if it sounds right.

New Salary from November £40,000
Current tax code 646L (I do have a company car, this is taxed at source my payroll department tell and I pay for all private fuel)
New company car list price £30,000
Co2 Emissions 109
When I use list price and Co2 on HMRC calculator is derives a car benefit of £3,900.

I need to minus £3900 from my tax code allowance so 6460 - 3900 = £2560 tax free allowance.
I also plan to pay 5% into pension scheme which is £2,000 so

Salary -£40,000 - 2560 -2000 = taxable income £35,440.

£35,440 x 0.20% tax is £7088
£35,440 x 0.11% NI is £3898
PENSION £2000
TOTAL DEDUCTIONS £12986

Annual Net Wage 40,000 - 12986 = £27014

Monthly Net Wage 27014 / 12 months = £2251.

Does this even sound remotely close?

(I'm away for a lie down!)

JimmyTheWig

Sounds good to me, Parnott, though others might be better placed to confirm.

I don't believe that the NI allowances tie up exactly with the income tax allowances, so there's definitely going to be some error in what you've done. But I think you should be in the right ballpark.

[STRIKE]
You haven't taken off your pension contributions from your net wages. If they get taken out from your pay you may want to do this in your calculations now.
[/STRIKE]

Cortinaa_GTR

Hi Jimmy,

I thought I had taken my 5% or 2k per annum pension off at the top which gave me the taxable income figure to work from?

CLAPTON

Parnott wrote: »

Hi guys. All responses appreciated. Can I run this past you to see if it sounds right.

New Salary from November £40,000
Current tax code 646L (I do have a company car, this is taxed at source my payroll department tell and I pay for all private fuel)
New company car list price £30,000
Co2 Emissions 109
When I use list price and Co2 on HMRC calculator is derives a car benefit of £3,900.

I need to minus £3900 from my tax code allowance so 6460 - 3900 = £2560 tax free allowance.
I also plan to pay 5% into pension scheme which is £2,000 so

Salary -£40,000 - 2560 -2000 = taxable income £35,440.

£35,440 x 0.20% tax is £7088
£35,440 x 0.11% NI is £3898
PENSION £2000
TOTAL DEDUCTIONS £12986

Annual Net Wage 40,000 - 12986 = £27014

Monthly Net Wage 27014 / 12 months = £2251.

Does this even sound remotely close?

(I'm away for a lie down!)

your NI will be nearer

(40,000 + 3,900 -5715 ) x 11% assuming that the pension isn't contracted out of the second state pension (otherwise 9.4%)

Cortinaa_GTR

Hi Clapton,

I removed the car benefit from my allowance (thinking my tax free amount should fall since I will have a car) but you added it on to my salary. (is this basically the same) and where does the 5715 come from?

Thanks.