wonder if you can help

elantan

Hi all,

wonder if you can possibly explain to me ( as i may be understanding this wrong) and help me sort something out ( if it is possible) ... i'm trying to help a friend but am unsure really what the truthful answer is

bit of background, friend earns £30,400 a year, so is a lower rate tax payer, however they have done a little bit of overtime this month, and will earn approx £1,000 for the overtime, this would still keep them at the basic rate for tax for the year ( ie £31,400 yearly wage), but i understand that for this month it will put them into the higher tax bracket of 40%

firstly is this correct? i think it is but am unsure, secondly will their pension then recieve the 40% tax relief for the month also? they have a company pension,

Also will this then correct itself back to the basic tax code next month ? and through out the year will it sort itself out ( ie the extra they pay in tax will be returned back to friend) or will my friend have to claim the extra back that he has paid from the tax man come April?

He seems to think the overtime is a one off and wont happen again this tax year, he also didn't realise it would put him into the higher tax bracket ( wasnt very happy about hearing that from me either) he is not trying to not pay his taxes, he just wants to make sure he is not paying more than he should and also he wants to ensure he doesnt pay too little and have a tax bill land on his door step.

He is employed and is tax is deducted at source so i explained this was unlikey, but he is now panicking a bit


thanks in advance

00ec25

elantan wrote: »

firstly is this correct?

NO. you have forgotten 2 things:

1. you have not included the personal allowance

2. company pension payments are deducted from the gross salary before tax is calculated

so:
starting point for 40% tax = PA (9440) + 20% rate (32,010) = 41,450. Then you deduct pension contributions before you get to the actual taxable pay figure

he has a long way to go before he will pay 40% tax

elantan

ahhhhh right sorry i did not realise that you pay £32,010 at 20 % i thought it was pa £9440 then 20% up to £32,000 then 40% after that ... so anything you earn over £32k would be taxed at 40% ... kinda like the way the old system was when you paid 10% tax after the pa and before the basic rate

thanks that makes more sense now ... i can tell him i was wrong ( i dont mind admitting i am wrong and will be glad to in this instance)

it's not something i have ever had to worry about lol but is a good point to remember for future

thank you very much

jem16

elantan wrote: »

ahhhhh right sorry i did not realise that you pay £32,010 at 20 % i thought it was pa £9440 then 20% up to £32,000 then 40% after that ... so anything you earn over £32k would be taxed at 40% ... kinda like the way the old system was when you paid 10% tax after the pa and before the basic rate

You were wrong with the tax bands but partly correct in what you were saying. It is possible that an overtime payment could push someone into higher rate tax for that month depending on the exact amounts involved. Over the course of the next few months the tax would recalculate and would be refunded.

Whether this will happen with your friend depends on how much your friend is paid each month and when in the tax year it happens. It's more likely to happen the closer you are to the start of the tax year.