Quick question - is it sometimes beneficial to earn less to get taxed less?

Heisenberg3000

Hello,

Can anybody settle a Friday afternoon office debate? My colleague Paul says that because of the income tax raise from 20% to 40% at the £35,000 p/a mark, it is better to be on just under 35K than 40K in terms of 'take-home' pay.

I suspect that this is unlikely, and that HMRC would be unlikely to implement a ham-fisted system that allows such an anomaly. However, not being very well-versed in tax I can't back this suspicion up.

Can anybody either help prove me right, or advise me to quickly change the subject?!

Regards,

Chris

dazza.mk

Higher rate tax is only paid on earnings above the threshold so in that aspect it is still benefical to earn just over the threshold.

The only caveat to that is if you have children, as with the plan to claw back child benefit from Higher Rate tax payers from 2013 then if you earn £1 over the threshold you stand to lose £1618 in Child Benefit.

Heisenberg3000

Great, thanks for that Dazza. Neither of us are actually weighing up a potential job, it was just to win the argument really. And for general info I guess... cheers!

Chris

GRM

A handy site for these type of questions which I found via MSE: http://www.thesalarycalculator.co.uk/salary.php

£34999 = £2180/month take home
£39999 = £2463/month take home

chrisbur

The tax rate does not change at £35000 earnings it changes at £35000 taxable earnings. You have to adjust the £35000 with your tax allowance. So if your code is 747L then the 40% band starts at £42475 £7475 + £35000 if it is K54 it starts at £34455 £35000 - £545

mrsyardbroom

You are only taxed at 40% on the taxable earnings that fall within that band. You will still be taxed at 20% on the taxable earnings below that band so go for the higher earnings if you can. I wish I had that dilemma.