Higher Rate Tax Question - Am I poor for the rest of the financial year?

Psychological_2

Hello all - Happy New year and all that jazz...

I am hoping someone can help me with a query on tax. I have just moved into the higher rate tax bracket for the first time in my life (total gross pay of £38,282.26 in December).

I am on tax code 647L and I was wondering if I should expect my ENTIRE pay packet for the remainder of the year to be lighter (i.e. 20% lighter than I'm used to) or if the clever people at the inland revenue will have noted that my pay for the last 9 months has been heading this way and have factored this accordingly so that I shouldn't notice a huge drop in my monthly pay packet.

Appreciate any advice on the matter, have put some money away but would be nice to know either way.

Many thanks in advance!

CLAPTON

if you mean that your pay has risen so that on a 12 month basis going forward that your income is now 38,282 pa then you are NOT a 40% tax payer ... you need to earn £43,875 pa before 40% tax is applicable.

CLAPTON

and
even if your pay had risen by more so you had to pay 40% then you only pay the 40% on the amount OVER 43,875 so you will always be better of take home pay wise

zagfles

No you shouldn't notice a drop - PAYE works on a year-to-date basis which smoothes it through the year. So in Decemember being 9/12th through the tax year your tax will be worked out on 9/12th of your allowance (tax code plus 9 ie 6479) and 9/12th of the basic rate band. So you'll already have been paying higher rate tax for a while (unless your pay rise was very recent).

Something to watch out for is if you have any taxable interest or other such income you'll have to pay extra tax, not that that is likely to be much these days.

Psychological_2

Hi Clapton, my current gross pay to date is that amount, so over the remaining three months of this financial year I will go over the threshold.

Thanks for the response, I thought the Higher rate: 40% Over £37,400 but am I ignoring the personal allowance?

CLAPTON

Psychological wrote: »

Hi Clapton, my current gross pay to date is that amount, so over the remaining three months of this financial year I will go over the threshold.

Thanks for the response, I thought the Higher rate: 40% Over £37,400 but am I ignoring the personal allowance?

indeed so
6475 plus 37,400 = 43875
but anyway you only pay on the excess over that and not on your whole salary.

CLAPTON

and just to add
the 43,875 has to be earned between 6th april 2010 and 5th april 2011; so it depends upon your total earnings for the tax year
merely having 3 months at a higher rate may or may not mean your total for the year exceeds the 40% threshold.

Psychological_2

zagfles wrote: »

No you shouldn't notice a drop - PAYE works on a year-to-date basis which smoothes it through the year. So in Decemember being 9/12th through the tax year your tax will be worked out on 9/12th of your allowance (tax code plus 9 ie 6479) and 9/12th of the basic rate band. So you'll already have been paying higher rate tax for a while (unless your pay rise was very recent).

Something to watch out for is if you have any taxable interest or other such income you'll have to pay extra tax, not that that is likely to be much these days.

Ah that's just what I needed to know, so they do work it out cumulatively. Was very concerned I was going to be in trouble for the rest of the financial year.

Thanks for the advice, greatly appreciated!

chrismac1

was your tax to date 8,731.05? If so, you've had 9/12 of your basic rate band and have been paying 40% tax throughout.

Psychological_2

I think it was more like £7,700 in tax to date as I recall - really don't want to get stung with a massive tax bill at the end of the year but I spoke to the IR to try and clear it up and they were incredibly unhelpful.

chrismac1

What was your "Gross for PAYE to date" or similar wording from your payslip? Was it the same as your gross pay? If so I am not sure how the PAYE calculation has been arrived at.