Please explain income tax

martywater

Hi there, I feel like a right eedjit asking this but I can't find out how a payrise would effect me.
To explain, I may be getting a payrise that would take me over the £42500 basic rate (just) and I'm getting conflicting advice that this would leave me worse off each month. Would I be paying 40% on all my income or just that wee bit above the break off point?
Many thanks and a Happy St. Patrick's Day to you all.
Cheers!

Quiet_Life

Income tax: taxable bands and rates 2010/2011

Taxable income rate of tax 0 - £2,440 10 per cent (starting rate for savings only) 0 - £37,400 20 per cent (basic rate) £37,401 - £150,000 40 per cent (higher rate) Over £150,000 50 per cent (additional rate) Basic rate

Tax is payable at the basic rate of 20 per cent on taxable income up to £37,400.
Higher rate

If you have more than £37,400 but less than £150,000 of taxable income, you will have to pay a higher rate of 40 per cent tax on the amount above £37,400 and below £150,000.


This web site has good info
http://www.adviceguide.org.uk/index/life/tax/income_tax_rates.htm#income_tax:_taxable_bands_and_rates_2008/2009

CLAPTON

for a normal person after 6th april the situation is:
first 7475 is tax free
the next 35,000 is taxed at 20%

so only the amount OVER 42,475 is taxed at a marginal rate of 40%

also if you contribute to a pension then that's tax free; if e.g. you pay say 2,000 into a pension scheme then 40% doesn't start until 44,475

also remember that you pay NI of 12% of earnings up to 42,475 and then only 2% thereafter so the change in the level of deductions is a lot less than you think.

so you will be better off with the higher income unless you are caught in the conlibs child benefit scam.

martywater

Wow, that was a quick response! Many thanks. So as I understand it, there's no way I'd be worse off then? Excellent news, and thank you again! Cheers!

Careful_ly

You wont be worse off, just get less of your payrise!

But it will have an impact if you get family allowance, as that will no longer be payable, from April 2012.