Pay rise or car

jamiedownes

Hi, I have just been offered a pay rise of £6000 takin me from £34k to £40k, this will take me into the 40% tax bracket, would I be better off asking for a car instead?

CLAPTON

40% tax starts at an income (net of pension payments) of 42,475

whether you are better off asking for a car depends upon the car.. lots of websites that allow you to work out the tax implication of a company car

jamiedownes

Hmrc website says 40% starts at 35k in 2011-2012 tax year?

taxsaver

Yes, that's £35k of TAXABLE income..... so AFTER you have deducted your personal allowance of £7,475

jamiedownes

That's great news thanks, the thought of paying 40% was keeping me awake at night!

CLAPTON

indeed but the website (and lots and lots of newspapers) say that the tax allowance is 7475 this year
so
the first 7475 is tax free
the next 35,000 is at 20%
and so the amount over 42,475 is at 40%

if you pay into a pension of say 2,000 then you can earn 44,475 before 40% tax

jamiedownes

CLAPTON wrote: »

indeed but the website (and lots and lots of newspapers) say that the tax allowance is 7475 this year
so
the first 7475 is tax free
the next 35,000 is at 20%
and so the amount over 42,475 is at 40%

if you pay into a pension of say 2,000 then you can earn 44,475 before 40% tax

Great that's even better news!

CLAPTON

jamiedownes wrote: »

That's great news thanks, the thought of paying 40% was keeping me awake at night!

I'm not sure you the idea of 40% keeps you awake

below 42,475 you pay
20% tax and 12% NI i.e. 32% deduction
above you pay 40% tax and 2% NI i.e. 42% deduction

and this only applies to the amount ABOVE 42,475 so although more it's not a massive amount either