Paying 40% Tax

gk14

As the 40% tax band has been lowered I may now be affected by this but I am not 100% sure how it will work...

I am on hourly rate and paid weekly and my basic pay is under the higher tax bracket. However, I do quite a lot of overtime but at the moment but I am paying 20%. Does this then mean, if and when I have earned enough money this tax year and I reach the next bracket, I will be paying 40% every week even if I work a 'basic' week or will it just be the overtime that is taxed 40%?

Thanks in advance

dtaylor84

For 2013-14:
The standard personal allowance is £9440.
The basic rate band is £32,010.

So you can earn up to £41,450 before paying 40% tax.

However, this is calculated cumulatively, so (if you're paid weekly):

In week 1 your year-to-date income is calculated against 1/52th of the personal allowance and 1/52th of the basic rate band to determine how much 20% / 40% tax is due, and compared with the tax you've paid in the year. The difference is deducted as tax.

In week 2, the same happens, but using 2/52ths of the personal allowance and the basic rate band. And so on, until at the end of the year your full year's income, allowance, basic rate band and tax paid is used.

Ultimately, that means if your wages are high in week 1 then low in week two, you might pay 40% tax the first week but get some of it back again in the second week.

nomunnofun

Fifty twooths always confused me no end.

gk14

dtaylor84, thanks I thought the banding was inclusive of the personal allowance not on top of. I don't need to worry about that yet then.... maybe one day

zygurat789

gk14 wrote: »

dtaylor84, thanks I thought the banding was inclusive of the personal allowance not on top of. I don't need to worry about that yet then.... maybe one day

Show me a man who pays a lot of tax and I'll show you a rich man