Basic tax question on High/Low earner taxes

Babbler

Ok,

I am fortunate enough to have been given a payrise recently. However, this rise takes me around £350 into the high tax band. Meaning @ 40% tax I only technically get £18 more a month BUT being in the higher tax band has other implications from what I know?

Like paying more tax on non tax-free savings? So:

1) Would it be a good idea to just ask for a pay cut to be on the limit of the tax bands?
2) If I get ovetime would that mean Im in the higher tax band anyway or is it based on basic salary only?
3) Am I supposed to inform the bank of this as they take tax from my savings (albeit at a low low rate)? Ive always thought tax was automatic?
4) May be having a kid next year so obviously it will affect child benefits etc under new rules coming in. :cool:

All help appreciated!

Thanks.

Mikeyorks

The 40% rate kicks in at £43875? So are you in? If so :-

1. No. You still get 60p in every 100p .... so why reject that? Increasing your contribution to a pension is better?

2. It's based on all income + gross interest etc.

3. No - you have to advise HMRC. The 20% deduction from interest by your Bank etc is a fixed rate.

Babbler

According to this:
http://www.hmrc.gov.uk/rates/it.htm

Its 37,400 to be high rate earner? Or am I confused? I would lose out on child credits which works out about £60 per month.

System

Babbler wrote: »

According to this:
http://www.hmrc.gov.uk/rates/it.htm

Its 37,400 to be high rate earner? Or am I confused? I would lose out on child credits which works out about £60 per month.

The HMRC info shows the tax bands (but also includes allowances)

If you add the personal allowance of £6,475 to the 40% band of £37,400, then you get £43,875 as per Mike's post...

Mikeyorks wrote: »

The 40% rate kicks in at £43875? So are you in? If so :-

All your income, including interest on savings and overtime is included in your total earnings.
So, to minimise your tax burden, make sure you use your ISA allowance each year instead of leaving savings in ordinary accounts and think about increasing pension contributions as pointed out by Mikeyorks.

P.S.
You can ignore the following because you are not liable for 40% tax after reading your post #7 - shame you didn't mention that earlier - Doh!
If you have significant taxable savings interest as income, then I assume you have been informing HMRC of this, either via your tax return or via a letter to HMRC to let them know the amounts - especially important for 40% tax payers.
Your tax code (Shown on a P2 Coding Notice) should be adjusted each year to take into account your total income -including savings - so that your allowance is reduced to make sure you pay the correct amount of tax on the savings interest (any extra needed at 40%)

Babbler

Ok - I think I found the answer. Its AFTER the allowance? So how come Im getting taxed at 40% on overtime then? Hmmm...

jem16

Babbler wrote: »

Ok - I think I found the answer. Its AFTER the allowance? So how come Im getting taxed at 40% on overtime then? Hmmm...

Because your oevertime may take you into the higher rate tax band for that month although not necessarily for the whole year.

Impossible to tell without figures.

Babbler

Thanks. So as Im earning 37800 ish that means Im ok and shouldnt be in the higher tax bracket then? Thats good news then

Overtime per year is MAXIMUM £2k. MAXIMUM if Im lucky...

jem16

Babbler wrote: »

Thanks. So as Im earning 37800 ish that means Im ok and shouldnt be in the higher tax bracket then? Thats good news then

You're not a higher rate taxpayer.

Babbler

Great news then - phew. So if I pay 40% tax in one month as I went over for that month alone (back pay) does that mean I can claim some back at the end of the year? Im sure I paid 40% tax on the extra money. Will have to investigate further now I know more. Thanks all!

jem16

Babbler wrote: »

So if I pay 40% tax in one month as I went over for that month alone (back pay) does that mean I can claim some back at the end of the year?

You won't need to. Provided you are on a cumulative tax code your tax will be reworked each month so that by the end of the tax year you will have paid the correct tax.

Basically if you pay too much one month because of overtime or a bonus the next month/s will see it refunded,

Babbler

Thanks again.

BTW - I hardly earn ANYTHING from interest (dont have much savings as had bad circumstances this year leaving me low on savings - interest is around £50 for the year!).