Tax question UK income tax

CLAPTON

John_Pierpoint wrote: »

..........however it is when you take it out again as an annuity that things might not be so rosy.

Artificially low interest rates created by quantitative easing.
Inflation caused by ditto plus a poor economy, deficit financing and a falling GDP per head.
A 30% tax trap (as age allowance is left to wither below the rate of inflation).

I am not saying you should not do it but don't book the world cruise yet; that might be reserved for senior members of the state sector, when retirement time comes.

the 30% tax effect has been (almost) abolished by the freezing of the age allowance .. how kind of them in power

zygurat789

Sazzie23 wrote: »

Hi all

Thanks for the replies

If we are paying pension contributions this reduces the amount we can earn before paying tax or increases it?



Think I've got that 0-9440 - 0% tax,
9441 - 41450 @ 20%
and anything over that @ 40 % (unless there are variations as stated in other posts)

As it happens, the chances of getting an income of over £100k in the near future are as likely as winning the lottery, but just to enlighten me, its not actually as 'advertised' 40 % at 150 k its 40 % to 100k then sort of 41+% etc upwards from £100k to £118k and 60% at £118k+ , almost sort of glad I don't earn that sort of money I'd really begrudge giving up 60% on tax.

Thanks to everyone that has replied, been really useful.

All figures are applicable to TAXABLE income.
People DO win the lottery.
From £100,000 to £118,880 it is 60% (effectively)
£118,880 to £150,000 taxed at 40%
Above £150,000 taxed at 45%

Taxable income is gross income, salary, benefits in kind, interest, rents etc,etc,etc, but not gifts.
Less allowable payments if applicable ie pension contributions, mileage, use of home, certain subscriptions etc etc etc.

agrinnall

You also need to think about how much employees National Insurance you pay. For earnings between £109 and £797 per week you pay 12%, but above £797 (which equates to the £41450 at which 40% tax starts) you only pay 2%. As a result, the marginal increase in your overall payments when you hit that amount is actually 10% rather than 20%, from 32% to 42%. While these figures may vary depending on tax code and other factors it does soften the blow a little at that earning point.

Sazzie23

agrinnall wrote: »

You also need to think about how much employees National Insurance you pay. For earnings between £109 and £797 per week you pay 12%, but above £797 (which equates to the £41450 at which 40% tax starts) you only pay 2%. As a result, the marginal increase in your overall payments when you hit that amount is actually 10% rather than 20%, from 32% to 42%. While these figures may vary depending on tax code and other factors it does soften the blow a little at that earning point.

Ok that's an interesting point, I knew there was a level below which you don't pay but I thought it only went up & not down.

'As a result, the marginal increase in your overall payments when you hit that amount is actually 10% rather than 20%, from 32% to 42%. ' Could someone break that down a bit more for me as I'm not quite clear what that mean .

I'm not likely to hit the £41,450 income but some of my senior colleagues are hovering in that area, I'm on the £30K end hence the original question.

& thanks to zygurat789 for 'People DO win the lottery' made me smile - I need a bit of positive thinking at the moment .

agrinnall

Below £41450 you pay 20% tax and 12% NI - total 32%
Above £41450 you pay 40% tax and 2% NI - total 42%

So on income above £41450 you pay a total of 10% more than on the income below £41450, rather than the 20% extra you might think it was if you only take tax into account.

Sazzie23

agrinnall wrote: »

Below £41450 you pay 20% tax and 12% NI - total 32%
Above £41450 you pay 40% tax and 2% NI - total 42%

So on income above £41450 you pay a total of 10% more than on the income below £41450, rather than the 20% extra you might think it was if you only take tax into account.

Oh, sorry obvious now you've put it like that, our perception has been that if I put a lot of extra hours in its taxed so high it's not worth it, but I think maybe that's not the case.

Appreciate everyone who has replied it has really changed my thinking.

somethingcorporate

It's always worth it for extra money, even if you pay more tax on it!

60% (ish) percent of every extra pound you earn is better than 100% of every extra pound you don't!

There are very few reasons not to earn more money, tax is almost never one of them and certainly not because you get taxed at a slightly higher rate on extra income.

zygurat789

somethingcorporate wrote: »

It's always worth it for extra money, even if you pay more tax on it!

60% (ish) percent of every extra pound you earn is better than 100% of every extra pound you don't!

There are very few reasons not to earn more money, tax is almost never one of them and certainly not because you get taxed at a slightly higher rate on extra income.

Each £1 earned may result in the reduction of tax credits and benefits, TC being reduced by 41p for each £1 earned. So whilst the tax is ONLY 20p and NI is ONLY 12p the reduction in TC is a wapping 41p making an effective tax rate of 73%. In other words you get to keep, in your pocket, 27p of every extra pound which you earn.

Sazzie23

Morning

somethingcorporate wrote: »

It's always worth it for extra money, even if you pay more tax on it!

60% (ish) percent of every extra pound you earn is better than 100% of every extra pound you don't!

There are very few reasons not to earn more money, tax is almost never one of them and certainly not because you get taxed at a slightly higher rate on extra income.

That's a lovely thought and I totally agree with the concept, but in reality if you are working til you drop 6 days a week, the option of working a 7th day under the same physical conditions is slightly more appealing if you are taking home 60% rather than the 30% we had estimated.(..and yes we are all grateful to have a job/pension/extra hours etc) its just a pure physically knackered state that individuals need to decide if its worth their while.

Thanks to Zygurat for pointing out the tax credit situation, I'm not entitled to any so its not something I've ever considered but obviously its going to be important for anyone who can claim.

somethingcorporate

zygurat789 wrote: »

Each £1 earned may result in the reduction of tax credits and benefits, TC being reduced by 41p for each £1 earned. So whilst the tax is ONLY 20p and NI is ONLY 12p the reduction in TC is a wapping 41p making an effective tax rate of 73%. In other words you get to keep, in your pocket, 27p of every extra pound which you earn.

Yep, this was one of the few situation where the marginal rate of loss means it probably isn't worth it, but is a quirk of the benefits system and not the tax system. It is the loss of benefits that makes you worse off, not an increase in tax.