Income Tax Question

mad_panda

I get confused when it comes to income tax as I have never had to worry about being in the upper tax bracket of 40%.

Currently I am on £32k and have an offer of a new job which is offering £35k.

Could someone tell me if I will be in the upper tax bracket?
I have read in places that you get your personal allowance at around £7k and £35k on top of that will bring it to £42k and then you will be charged the upper 40% tax rate.

Other sites suggest that it is a straight line effectively and anything over 35k will be taxed at the higher rate.

Can anyone confirm or deny this for me please and help clear up my confused brain.

HappyMJ

Anything earnt over £42,475 will be taxed at 40%.

Try using http://listentotaxman.com/index.php to get an idea of what your income will be.

jem16

The higher rate tax bracket starts at £42,475 - ie. taxable band of £35,000 plus personal allowance of £7475.

Think of it this way;

£7475 - 0% tax
£7476 - £35,000 - 20% tax
£35,001 - £150,000 - 40% tax.

So you will not be a higher rate taxpayer.

mad_panda

Phew......was panicing for a bit there. I only noticed the calculator link at the top of this page after posting.

Jem, the way you posted is what I have seen on websites and it has made me think I would be a higher rate tax payer. Thats how I understood it and what has caused the confusion.

Thanks

mad_panda

Ahhh thanks to the calculator that you linked I think it has clicked. Feel so embarrased now.

I was thinking that the entire salary was brought into the tax equation, but its split so that if you earn £45k, you pay the extra £3k at the higher rate and in the band from £7k - £35k you pay the 20% tax rate.

(Numbers simplified for my simple brain to handle :rotfl:)

somethingcorporate

mad_panda wrote: »

Ahhh thanks to the calculator that you linked I think it has clicked. Feel so embarrased now.

I was thinking that the entire salary was brought into the tax equation, but its split so that if you earn £45k, you pay the extra £3k at the higher rate and in the band from £7k - £35k you pay the 20% tax rate.

(Numbers simplified for my simple brain to handle :rotfl:)

You'd be surprised how many people don't get this. It isn't logical though if it was that way, otherwise you'd be better off earning £1 less than the bracket than £1 over which is nonsense!

The increase in rate is only ever on money above the limit so for every £1 you earn you will be better off.

They don't advertise the limit being 42,475 because your personal allowance can differ due to other perks (company car, health care etc) so it is personal allowance + £35k.