Will I be taxed at higher rate if I earn more one month?

rileydog

This is probably a very simple question....

My salary is 28k, however so far this tax year up until end of August I have earnt 13,001 including overtime - which works out to an average of £2600 per month before tax and other deductions.

I have done lots of overtime this month and am due to earn £3166 before tax and other deductions. I am also owed some backdated pay and have some control over when this is paid - with the backdated pay my total earned before any deductions would be £3445. This would be paid 31st October.

From googling I see the threshold for higher rate tax is £42,475 - I know very little about how income tax works, is it really as simple as 'if you earn more than £3539.58 (£42,475 / 12) in any one month you'll be taxed at higher rate'? I don't want to risk paying the higher rate tax if there's other factors they take into account, especially as I have some control over when the backpay is paid so could ask for it to be paid the following month instead when I will be getting my flat salary of around £2,300 before tax and other deductions so nowhere near the higher rate band.

Thanks in advance for any input

real1314

Tax is assessed on an annual basis. I'm not sure what your payroll might do in a single month, but if they did apply higher rate tax to earnings over £3539.58 in the single month, they would probably rebate it back in the following month, or almost certainly within the tax year.
You will not end up paying higher rate tax unless you earn more than £42,475 in the entire tax year. :cool:

ceeforcat

By the end of September you will need to have earned 6 x £3539 in this tax year i.e. since 6th April, to pay any higher rate tax - does not look likely.

rileydog

Thanks, I have just realised that despite my flat salary being 28k (£2333 per month) I have actually earnt an average of £2600 per month - £13,001 this tax year according to the payslip which covers up to and including 31st August.

I really don't want to be taxed at higher rate, even if I'd get it back eventually!

CLAPTON

no it is not as simple as that

tax works on a yearly basis so you need to earn more than 42,475 (after you have deducted any payments to your pension) before paying 40% tax overall.

However it is possible to pay more tax in one month if you earn a lot especially in april/may, but that will automatically be repaid the next month.
In general you are better off being paid a lot in one month as you pay less overall NI that way.

zagfles

rileydog wrote: »

This is probably a very simple question....

My salary is 28k, so far this tax year up until end of August I have earnt 13,001 - which works out to an average of £2600 per month before tax and other deductions.

I have done lots of overtime this month and am due to earn £3166 before tax and other deductions. I am also owed some backdated pay and have some control over when this is paid - with the backdated pay my total earned before any deductions would be £3445.

From googling I see the threshold for higher rate tax is £42,475 - I know very little about how income tax works, is it really as simple as 'if you earn more than £3539.58 (£42,475 / 12) in any one month you'll be taxed at higher rate'? I don't want to risk paying the higher rate tax if there's other factors they take into account, especially as I have some control over when the backpay is paid so could ask for it to be paid the following month instead when I will be getting my flat salary of around £2,300 before tax and other deductions so nowhere near the higher rate band.

Thanks in advance for any input

As per previous replies tax is on an annual basis so it won't make any difference which month you get the backpay for tax.

However NI is done on a pay period basis, the normal rate is 12% but it drops to 2% for any income over £3540 a month. So you'll be better off if you get all the backpay paid in the same month as all the overtime, as you'll pay less NI!