Can anyone explain how the higher rate tax bracket works?

kmanpilkers

First time using this forum in a long time - I'm at the end of my tether and I would really appreciate some help! I changed jobs in July 2018. My salary was £31K prior to July, now I've got a new job my salary in that job is £35K. In addition to my change in job, I also got a second job at the same time that pays approx £200 a month, so about £2400 a year, but it's variable as it's technically zero hours - could be more or less than £200 a month. I do PAYE on both jobs, and I've always been a PAYE tax payer.

I had loads of trouble getting HMRC to set my tax code correctly, and also my estimated earnings were wrong, but this should be all correct now after I corrected it myself using my online tax account. One important thing to note is that I have the marriage allowance and flat rate expenses added to my personal income tax allowance, so the total personal allowance is £13,100, not the standard £11,850.

HMRC have now notified me that I owe them tax, and have adjusted my personal allowance from £13,100 to £128 (!) to try and compensate as they say I owe them £959.60 in tax for this tax year (so before April 2019).

I'm trying to get HMRC to explain why, and it's worse than pulling teeth to be honest, but I'm waiting for a call back - the first line member of staff was really extremely out of their depth.

I'm trying to get to the bottom of why this might be myself, so I checked the income tax brackets again, and I came across a discrepancy that I don't understand. I was under the impression that the threshold for paying higher rate tax was £46,350 - it even says so on HRMC's own website. If that is the case, I would never have any chance of earning that figure with my current incomes. However, I noticed that there is further information on HMRC's website, and on a letter that HMRC sent me, (and also on the MSE article about income tax) that suggests that the higher rate bracket starts at £34,500! Which is it?! My only thought was that because I've got an adjusted personal allowance, my higher rate bracket is lower than if it hadn't been adjusted. I'm pretty confused really. If the higher rate bracket is indeed £34,500, then some of my income would now be taxed at 40% for definite as I'd be in that category I think. HMRC stated on the phone that I was not paying higher rate tax, and that they had no idea really why I was being asked to suddenly pay more tax.

EDIT: sorry if this comes off as a rant - I really appreciate any advice people are able to give about understanding how you are charged higher rate tax.

BoGoF

The £34500 is after your personal allowance has been deducted from your income.

Up until your tax code recently changed, what codes were in operation against both jibs?

uknick

The higher rate taxable income threshold is £46,350. Note I say taxable. But, you get a personal allowance so the amount you are taxed on is reduced by that. So, if you have the usual PA of £11,850 you can earn £46,350 less £11,850 giving £34,500 before you get taxed at 40%.

With regard to your own case, we'd need to see some numbers to give you an idea of what you may owe.

kmanpilkers

BoGoF wrote: »

The £34500 is after your personal allowance has been deducted from your income.

Up until your tax code recently changed, what codes were in operation against both jibs?

Thanks, that kind of makes sense then. However if you deduct my previous personal allowance from from my income, it's £37,400 - £13,100 = £24,300 so it's still well under the £34,500 for higher rate tax.

My tax codes were:

Main job: 1310M
Second job: BRX

My tax codes are now:

Main job: 12MX
Second job: BRX

It sounds like the tax HMRC says that I owe them is actually nothing to do with higher rate income tax in this case. I'll just have to wait to find out.

BoGoF

How long have you had this 2nd job?

kmanpilkers

BoGoF wrote: »

How long have you had this 2nd job?

Since July too.

BoGoF

And the code has always been BRx?

kmanpilkers

BoGoF wrote: »

And the code has always been BRx?

Initially it wasn't BRX. The complication is that my second job is actually with my original employer (pre July 2018). They now pay me significantly less than when they were my main employer, and as I wasn't aware I needed to tell HMRC that my main employer had changed, for the first month or two, July and August 2018, my tax codes were the wrong way around - I corrected it, but only after it had been wrong for 2 months as I wasn't aware. I think this is probably where the extra tax has come from, it's all a bit complicated.

BoGoF

kmanpilkers wrote: »

Initially it wasn't BRX. The complication is that my second job is actually with my original employer (pre July 2018). They now pay me significantly less than when they were my main employer, and as I wasn't aware I needed to tell HMRC that my main employer had changed, for the first month or two, July and August 2018, my tax codes were the wrong way around - I corrected it, but only after it had been wrong for 2 months as I wasn't aware. I think this is probably where the extra tax has come from, it's all a bit complicated.

Yes, I think that is the root cause and you have probably received the benefit of your personal allowance in both jobs for a period. Do you have a full breakdown of how the 12M code is made up?

00ec25

the letter informing you of the tax code change explains how it was calculated. What does it say? we cannot see it from here.

as above, you almost certainly have overpaid tax because of the wrong codes being applied to the 2 jobs

chrisbur

Can you give details from the last payslip you received for each job....
Taxable pay to date
Tax paid to date
Tax code
Tax basis
Week or month number