Tax Code - Higher Rate

jetsetwilly_2

I currently earn just below the higher rate band (once the childcare vouchers are taken out).

In July, I get an extra £1000 from a side job. This takes me above the band.

In Sept, I get a 3k pay rise so will be well into the higher rate.

How will my tax be worked out given that at present, my code is correct based on my current predicted salary.

Will I just get hit with a month of higher tax once my rise kicks in, or will it come as a mega hit once my total pay adds up to beyond the threshold e.g. next Feb/Mar?

zagfles

No PAYE works on a year to date basis. Is the "side job" a separate job or is it paid through your main job's payroll? Assuming it is, then you'll probably see most of the extra £1000 taxed at 40% but get some of it back in Aug, then in Sept probably all the extra getting taxed at 40%.

Childcare vouchers will be the complicated bit - they have some very strange rules, when you become a higher rate taxpayer the limits change - but not sure exactly how this works ie exactly when you're deemed to have become a HRT payer and when the change takes effect. Have a look on the HMRC site.

jetsetwilly_2

Thanks.

The side job is exam marking so paid through the exam board (I am a teacher). Up until this year I always got the extra stuff at 20% but this year i am borderline on the higher tax boundary having had a pay rise. However, with the childcare stuff, I think it might still fall just under the threshold, but in Sept my pay will definately go over.

I think I understand what you said and it is kind of what I logically expected. By 'get some back in Aug' I presume you mean through a lower tax dedection, not a seperate payment from HMRC?

My main worry was whether or not I had to send in some kind of self assessment to declare the extra, but as it is paid through BACS, the tax man should work it all out?.... In Theory

CLAPTON

The starting point for 40% tax is 41,450 per annum after deducting your pension payment and any salary sacrifice.


What exactly is your current salary? (and associated details).

When you say you get a 3k rise in September do you mean your gross increases by 3000/12 (250) per month or do you mean you get an extra 3,000 per month?

Does your side job have a separate tax code e.g BR?

I'm afraid tax is all about detail.

zagfles

As the second job is paid separately the "get some back in Aug" won't apply. You should get a D0 tax code for the second job so it'll all be taxed at 40%, you'll probably need to tell HMRC as they probably won't know you'll be in HRT this year. If you get a BR code you'll end up owing them at the end of the year.

They might ask you to complete a tax return as you've got 2 jobs and are in HRT, but probably not if you make sure the tax codes are right. I assume you're certain that you'll go above HRT threshold even without the extra £1000 for the separate job.

However if you go above £50k then you'll definitely need to do a tax return, assuming you or your partner claim child benefit.

Note also that you need to declare any interest, dividends etc you get as you have to pay extra tax on these when you're a HRT payer.

jetsetwilly_2

I didn't realise that pension payments are taken off your earnings in relation to when you start paying Higher rate tax. With childcare vouchers and pensions, I might just stay below it. The pay rise is £3000 per annum gross.

My gross salary will be £46,000 but I pay the full £243 childcare each month and £286 per month on my pension. I guess that this will just about keep me below the Higher band?

CLAPTON

tax is about detail


Are you saying that your total income including the two jobs and any savings interest (grossed up) will be 46,000 between 6th April 2013 and the April 2014?

how much pension contributions will you make between 6th april 2013 and 5th april 2014; similarly for the childcare vouchers

jem16

jetsetwilly wrote: »

I didn't realise that pension payments are taken off your earnings in relation to when you start paying Higher rate tax.

As a teacher, your pension payments are taken off your gross salary before you are taxed. This has the effect of reducing your taxable income so any tax relief is received at source with no need for you to do anything at all. Nothing at all to do with relation to when you start paying higher rate tax.

Childcare vouchers are usually done the same way.

My gross salary will be £46,000 but I pay the full £243 childcare each month and £286 per month on my pension. I guess that this will just about keep me below the Higher band?

If that £46k includes the £3k bonus then yes. Otherwise no.

You really need to clarify total income, pension and childcare vouchers as well as gross interest on savings as Clapton has asked. Only then could someone give you the best answer.