Tax banding

Jami74

On a recent (10/09/19) letter from the HMRC about my updated tax code is a description of the tax free amounts as follows:

If your total income and taxable state benefits for the year are more than your tax-free amount then you will pay tax as follows:

• at 20% on the first £37500
• at 40% on income between £37501 and £150000
• at 45% on anything over £150000

Having searched Google and read Martins tax rate guide here: https://www.moneysavingexpert.com/banking/tax-rates/ I thought I wouldn't start paying 40% unless I earned over £50000.

I'm wondering if I'm misunderstanding something. For the first time ever there's a chance that I might earn close to £40000 and I thought it wouldn't affect the tax bracket. I live in England.

Can anyone help me to understand please?

Edited to add: Could it be because I've got a second job with a BR tax code?

00ec25

Jami74 wrote: »

I'm wondering if I'm misunderstanding something.

yes you are making the basic mistake that so many others do - failing to understand the difference between taxable income and gross income.

Even the bit you bolded says that if you read it properly: taxable income is after deducting the personal allowance

gross income 50,000 less personal allowance (19/20 rate) 12,500 = 37,500 taxable income = still a basic rate taxpayer
earn £1 more and that extra £1 will have 40 pence tax taken from it

on only 40k gross you are no where near higher rate tax

Jami74

00ec25 wrote: »

if you read it properly:

:rotfl: Silly me!

Thank-you so much

polymaff

Jami74 wrote: »

If your total income and taxable state benefits for the year are more than your tax-free amount then you will pay tax as follows:

• at 20% on the first £37500
• at 40% on income between £37501 and £150000
• at 45% on anything over £150000

Jami74 wrote: »

:rotfl: Silly me!

Don't feel silly. If only they had written:


If your total taxable income and state benefits for the year exceeds your tax-free amount then you will pay tax on the excess as follows:


Syntax and grammar. R.I.P. circa 1970...:)

unholyangel

00ec25 wrote: »

taxable income is after deducting the personal allowance

polymaff wrote: »

If your total taxable income and state benefits for the year exceeds your tax-free amount then you will pay tax on the excess as follows:

And perhaps this demonstrates just how easy it is to make the mistake and why so many people get mixed up - given you two have just contradicted each other

Fwiw, my understanding is that taxable just means that its considered in income tax calculations, rather than there is tax to pay on it.

Taxable income (whether earnings, pension etc) have statutory definitions. Tax free does not and I think is used in the context of having 0% tax to pay - whether that be because its not taxable or because its taxable but zero rated.

polymaff

unholyangel wrote: »

Fwiw, my understanding is that taxable just means that its considered in income tax calculations, rather than there is tax to pay on it. .

Can't argue with that - other than that it immediately raises other issues about "consideration"


BTW this one of "you two" never gave an interpretation of any terminology - just a re-rendering of HMRC's fractured syntax.

unholyangel

polymaff wrote: »

Can't argue with that - other than that it immediately raises other issues about "consideration"


BTW this one of "you two" never gave an interpretation of any terminology - just a re-rendering of HMRC's fractured syntax.

By consideration I just mean its part of their calculations to determine your liability (even if the liability on it is zero) and that it can potentially affect your liability. Conversely, income that isn't taxable isn't factored into calculations so it doesn't even need to be reported to HMRC as it will never affect your liability.

The you two wasn't meant to be rude, apologies if it came across that way. I consider you both to be among the reliable posters on this board so was just highlighting its understandable for people to get confused over terminology when even those with good knowledge get confused sometimes.

polymaff

unholyangel wrote: »

The you two wasn't meant to be rude, apologies if it came across that way. I consider you both to be among the reliable posters on this board so was just highlighting its understandable for people to get confused over terminology when even those with good knowledge get confused sometimes.

Well, I asked for it, I suppose. My real reponse to that bit of HMRC hokum would be like the old joke of the yokel leaning over a farm gate:


"If you'm wanting to get there, Sir, I wouldn't start from 'ere"...:)