Understanding old tax bands

Bea787

Hi all,

Am trying to get to grips with some old tax affairs and am reviewing tax calculation summaries from the accountant. I have 2 queries which I can't understand:

1) can anyone explain why for tax years ending 07 and 08 the accountant has calculated a portion to be taxed at 20% and a portion at 22%? (I understand the bit that has initially been taxed at 10%, but I thought all the rest should be at 22% - it doesn't enter the higher tax bracket). How should this be worked out?

2) On more recent tax years the accountant's calculations show income tax due based on deducting the personal allowance from my earnings (not savings) and then applying the highest tax rate bracket applicable to the rest of any savings. In earlier years however, the personal allowance is deducted from the overall income from earnings and savings, which makes a higher tax figure owing than if applied to earnings first. Is this correct - was there a point when the rules changed about how to calculate this using the personal allowance?

I hope that makes sense. Been trying to work it all out and my head is now fuddled! Any help greatly appreciated.

xylophone

http://www.contractorcalculator.co.uk/TaxTables2006.aspx
http://www.hmrc.gov.uk/rates/itarchive.htm
http://www.hmrc.gov.uk/rates/it.htm
http://www.hmrc.gov.uk/tdsi/ten-per-cent-guidance.htm
http://www.hmrc.gov.uk/rates/it.htm

Bea787

Thanks for the links. I have already been to most of those sites though and have tried to work through that info but I still can't understand the points I raise above. I may well be missing something ...

Bea787

Morning all,

If anyone can help me with the query above I'd really appreciate it. Am trying to wrap this all up today ...
Thank you so much

jem16

Bea787 wrote: »

1) can anyone explain why for tax years ending 07 and 08 the accountant has calculated a portion to be taxed at 20% and a portion at 22%? (I understand the bit that has initially been taxed at 10%, but I thought all the rest should be at 22% - it doesn't enter the higher tax bracket). How should this be worked out?

Tax year 07/08 had 22% as basic rate tax. Tax year 08/09 had 20% as basic rate tax. Is this what you mean?

2) On more recent tax years the accountant's calculations show income tax due based on deducting the personal allowance from my earnings (not savings) and then applying the highest tax rate bracket applicable to the rest of any savings. In earlier years however, the personal allowance is deducted from the overall income from earnings and savings, which makes a higher tax figure owing than if applied to earnings first. Is this correct - was there a point when the rules changed about how to calculate this using the personal allowance?

It was to do with the dropping of the 10% rate. In earlier years everyone was entitled to a slice of the 10% rate. Now only some people are entitled to it (it can only be applied to savings interest) and that is those whose earnings fall below the personal allowance plus the 10% band. So to see if you are entitled to it, the personal allowance has to be taken from any earnings first to see if the 10% rate can be applied to any savings interest.

Bea787

Hi Jem, thank you. I'll have another look at what you say re the 10% so I understand that. re Q1 I know they are the tax bands for those years, what I mean is that my tax calculation shows a portion to be taxed at both of those rates within each year - if that makes sense? I thought it should just be 10% then 22% ...

jem16

Bea787 wrote: »

re Q1 I know they are the tax bands for those years, what I mean is that my tax calculation shows a portion to be taxed at both of those rates within each year - if that makes sense? I thought it should just be 10% then 22% ...

Ah right.

Is any of the income dividend income from investments?

pjclar02

It used to be that earned income (salary) in the basic rate band was taxed at 22%, and savings income was taxed at 20%. I can't recall for that specific year but this certainly used to be the case....will look later to confirm but does this stack up with the figures you have?

jem16

pjclar02 wrote: »

It used to be that earned income (salary) in the basic rate band was taxed at 22%, and savings income was taxed at 20%. I can't recall for that specific year but this certainly used to be the case....will look later to confirm but does this stack up with the figures you have?

You're correct.

I just looked back at a tax return for 06/07 which included the calculation figures. Earned income was taxed at 22% after the 10% band. Savings interest was taxed at 20% after the 10% band.

Unfortunately my tax return for 07/08 doesn't have the calculation figures to check but this is the most likely explanation.

Bea787

Thank you! You are stars! I think this is it. Will try and work it all out. I tried to find online info about whether savings income has always been taxed at the same rates but can't find it except for recent years. If anyone knows please let me know, but I think this gives me what I need to sort it. thank you so much. :T

PlutoinCapricorn

This shows the bands & rates etc. from 2006/07

http://www.adviceguide.org.uk/england/tax_e/tax_income_tax_-_how_much_should_you_pay_e/income_tax_rates.htm