Personal Allowance [question]

MikalDrey

hey hey

i have been investigating changes to my personal allowance and cant figure out why 80% of it vanishes into the taxmans grubby little mittens.

my tax code was changed and increased my personal allowance by £734 but my net income only increased by £147.

i have also done a calculation for the planned increase of the 2011 personal allowance by £1000 and the same occurs and the net income increase is only £200.

my base calculations are :

Gross Pay - Personal Allowance = Taxable Pay
20% of Taxable Pay = Tax
Gross Pay - Tax = Net Income

i also used the tax calculators on this site, listen to taxman and uksaving tax calculator and they all confirm.

why does an increase in personal allowance of each £100 only equate to a £20 increase in your net income. Surely increasing your personal allowance should do the reverse and you loose 20% tax and gain 80% net income ?

feel free to use any figures in the various tax calculators. it always comes out the same. Many thanks in advance.

eg.

£40,000 gross
£6,475 allowance
£33,525 taxable
£6,705 tax

£33,295 net income

£40,000 gross
£7,475 allowance (£1,00 increase)
£32,525 taxable
£6,505 tax (£200 decrease)

£33,495 net income (£200 increase)

once again, thanks in advance.

CLAPTON

because you pay only 20% tax on your earning so the maximum you can save by paying no tax is 20%
so if you are paid say 100 with no tax relief you pay £20 in tax and have 80 to enjoy

if the taxman increases your persoanl allowance by 100 so you pay no tax on the 100 then you save the tax of 20 ; the 80 you had already is unchanged

Empty_pockets

Good answer!

MikalDrey

thanks for the reply,

that example make things much much clearer. £200 free money in my sky rocket still makes me happier. its just gutting that the taxman giveth and the taxman taketh away

telegraph.co.uk wrote:

The level at which the higher rate of tax starts to apply has been lowered by £1,500 and will now be levied on any income above £42,375, as opposed to £43,875 previously.


Taking into account the £1,000 rise in the personal tax-free allowance, the basic-rate tax band has shrunk by a total of £2,500. This means that £34,900 of a person’s income is now taxed at 20 per cent, as opposed to £37,400 previously. This means the estimated three million existing higher rate taxpayers will also be worse off as a result of the changes, which will take effect from the start of the 2011-2012 tax year.

thanks again.

suso

actually next year with the increase in N I contributions, then although your tax allowance has increased by 1000 then you will not gain 200 extra,

as a side point its not sent into "taxmans grubby little mittens." its sent to the government.

HMRC is an independant body that collects the tax dictated by the government of the day, It does not set the tax rates, its sole purpose is collecting the tax as determined by by the government.

kickwhamstunner

MikalDrey wrote: »

its just gutting that the taxman giveth and the taxman taketh away

Just the other day I walked past a local hospital and was incandescent with rage that those so-called 'sick' people were being treated with money the taxman had stolen from me.

John_Pierpoint

I felt the same when I passed a group of feral kids: send them up the chimneys; they don't need no education.

Seriously though how much of the 50% of our GDP, that the government spends on our behalf, is wasted churning the pot.
Not to mention the hours we all spend as unpaid tax collectors.

http://www.youtube.com/watch?v=M_bvT-DGcWw

If you prefer real life, you paid for this:

http://www.youtube.com/watch?v=CJGb2BJLA3o