40% tax - help

bullo

Hello everyone, this is my first time posting and im hoping ive posted this in the right place.

Hopefully someone can help me out because im extremely confused. Im due to get a pay rise at work soon and ive been checking the threshold for moving into paying 40% tax and I just cant seem to figure out how much you have to earn before you start paying 40%,
The HMRC website isnt loading right for me but it seems to be showing the threshold as being £34,371 which seems very low, but then Ive been reading other sites where they mention you dont pay 40% until your earning around the £40,000 mark. Can someone possibly explain it nice and simply for me because if I move into 40% tax ill be worse off and may need to not take the full pay rise.

Thank you in advance.

getmore4less

Add the 20% tax band to the 0% tax band(personal allowance) adjust for tax codings.

so for 2012-2013
£ 8105 personal allowance
£34370 20% band


£42475 obove this is 40%

if HMRC won't work try
http://www.direct.gov.uk/en/Nl1/Newsroom/DG_200224

theoretica

You only pay 40% on your earnings above the threshold - not on all your earnings.

somethingcorporate

https://www.listentotaxman.com, try this, put your salary in and it will tell you how much tax (and at what bands) you will pay.

KiKi

bullo wrote: »

Hello everyone, this is my first time posting and im hoping ive posted this in the right place.

Welcome to MSE.

Hopefully someone can help me out because im extremely confused. Im due to get a pay rise at work soon and ive been checking the threshold for moving into paying 40% tax and I just cant seem to figure out how much you have to earn before you start paying 40%,
The HMRC website isnt loading right for me but it seems to be showing the threshold as being £34,371 which seems very low, but then Ive been reading other sites where they mention you dont pay 40% until your earning around the £40,000 mark.

I think it helps to understand how tax works in simple terms, so here goes...!

You have a personal allowance of £8,105, which means you can earn £8,105 before you pay any tax at all. You are then taxed 20% on the NEXT £34,370 TAXABLE income. So the HMRC website is correct, but it applies to taxable income only - which applies AFTER the first £8,105.

So you'd have to actually earn £8,105 PLUS £34,370 before you'd fall into the 40% tax bracket.

Can someone possibly explain it nice and simply for me because if I move into 40% tax ill be worse off and may need to not take the full pay rise.

This won't be the case. Again, in simple terms:

You pay nothing on the first £8,105 earned (ie, salary of £0-£8105)
You pay 20% tax on the NEXT £34,370 (ie, any salary between £8106-£42,475)
You pay 40% tax on the NEXT £115,630 (ie, any salary over £43,476)
(You also pay 50% tax on anything over £150,000)

So you only pay 40% on the amount OVER £43,476. You don't pay 40% on ALL your income if you earn that much. So don't panic if you do fall into that bracket.

I hope that helps clear things up.

KiKi