Question about 40% tax bracket

Saver-Rob

Hi there,

I've been doing alot of overtime and am going to earn above the £37,401 40% 2010-2011 tax limit. My question is do I add my tax free earnings of £6,475 onto that bracket and therefore everything over £43,876 is taxed at 40% or is it just everything after £37,401 full stop?

Also how is the tax calculated, monthly or yearly? I'm just wondering how it will all work out now I'm entering this bracket.

Thanks all.

Mikeyorks

Yes you add the personal allowance. So the 40% level starts above £43875.

Saver-Rob

Thanks alot. Didnt want to claim some of the overtime until next tax year if this hadn't been the case.

CLAPTON

43,875 is the income level at which you start to pay 40% tax

however do remember that income for tax purposes is = gross salary plus benefits in kind (car, health insurance) plus saving interest plus dividends less pension payments

and of course remember that you only pay the higher rate on the amount over 43,875 and not on everything

and also remember that your deductions
are lower rate tax 20% and NI at 11% so total = 31% (depending upon whether you are opted out of the second state pension or not)
and higher rate 40% tax plus 1% NI so total = 41%

so the differenc isn't that much really

Saver-Rob

Thanks for that. Its surprising how little most people know about all of this!

Mikeyorks

Next year the 40% band starts at the lower rate of £42,475!

The personal allowance goes up to £7475. But that's not available to 40% payers ..... so the 20% threshold is reduced to £35k accordingly.

So it's usually better to get your income paid promptly .... as the future rates aren't decreasing!

Saver-Rob

I will probably print this thread off and take it to work as its something that people really need to know!

Thanks again. I will be getting my claims in ASAP now!!!!!

bobthedambuilder

Mikeyorks, I understood that for 2011-12 the personal allowance only disappears progressively for earnings over 100k, and then at the rate of reduction of £1 for every £2 in excess of that, i.e the personal allowance only disappears altogether when you earn 100K + 2 x 7,475 = £114,950 or more.

Correct me if I'm wrong, someone.

Gas_Powered_Toothbrush

bobthedambuilder wrote: »

Mikeyorks, I understood that for 2011-12 the personal allowance only disappears progressively for earnings over 100k, and then at the rate of reduction of £1 for every £2 in excess of that, i.e the personal allowance only disappears altogether when you earn 100K + 2 x 7,475 = £114,950 or more.

Correct me if I'm wrong, someone.

This is true.

CLAPTON

bobthedambuilder wrote: »

Mikeyorks, I understood that for 2011-12 the personal allowance only disappears progressively for earnings over 100k, and then at the rate of reduction of £1 for every £2 in excess of that, i.e the personal allowance only disappears altogether when you earn 100K + 2 x 7,475 = £114,950 or more.

Correct me if I'm wrong, someone.

indeed so
but MikeYorks was referring to the fact that the INCREASE in the tax allowance of 1000 is cancelled out for 40% taxpayers by a reduction in the start point for 40% tax

zzzLazyDaisy

Also remember that the 40% is not automatically deducted by the employer under PAYE. You have to send in a self assessment form to HMRC and if you don't do this you get fined until you do send it in. Normally your employer will remind/explain this to you if you are going to drop into the 40% bracket, but the responsibility is yours.