New to earning over £100k

daleyland

Hi,

I recently started earning over £100k and it has opened me up to a whole new world i didnt even know existed.

I have read a lot about the "60% tax trap" etc etc and ways to reduce tax costs but what i am specifically wanting to know is relating to the process of calculating tax itself.

The main question i am looking for an answer on is...

Am i right in thinking that for as long as i earn over £100k in a tax year, i have to submit a self assessment and will essentially be hit with an income tax bill over and above what i am paying in PAYE?

If so, is there a way to plan for this in advance instead of being landed with a bill? Appreciate i could always submit my self assessment as soon as the tax year ends and not in January therefore giving me more time to save for the bill but is there an easy way to forecasts costs in advance?

Thanks in advance for any advice.

Dazed_and_confused

Am i right in thinking that for as long as i earn over £100k in a tax year, i have to submit a self assessment

Yes.

and will essentially be hit with an income tax bill over and above what i am paying in PAYE?

No. Your Self Assessment calculation will show your total liability for the tax year in question and any tax deducted at source such as PAYE tax will be deducted to give the net result. This might be a bill but equally it could be you are due a refund. For example if you have paid "relief at source" pension contributions and are due additional tax relief over and above the basic rate tax relief added by the pension company.

If so, is there a way to plan for this in advance instead of being landed with a bill? Appreciate i could always submit my self assessment as soon as the tax year ends and not in January therefore giving me more time to save for the bill but is there an easy way to forecasts costs in advance?

If you file your return by 30 December, owe less than £3,000 and still have a well paid PAYE job (or pension) then may not have to pay anything direct to HMRC the tax due could be collected through the following tax years tax code

For example 2019:20 Self Assessment return is filed during 2020:21 and the amount owed is collected via a reduced tax code for 2021:22.

The best way to keep things on track is to ensure HMRC are using an accurate estimate of your PAYE (taxable) salary. The amount which will appear on your P60. You can do this through your Personal Tax Account on gov.uk.

And obviously ensure your tax code is correct and as up to date as possible.

prowla

If you are working PAYE and paying into a pension, you could look at making your contributions via salary sacrifice.


If possible it can be an idea to earn a lot more one year if it takes you below the threshold the next.

csgohan4

Might want to look at ways to reduce your tax burden either through an IFA, or your own research but generally higher pension contributions, EIS e.t.c

daleyland

Thanks for your reply, Dazed and Confused.

I am still a little confused as for the last 2 years, my self assessment calculation has said that i have underpaid tax through PAYE by circa £5k each time. I assumed that PAYE only considers the first £100k but anything over this is would then be the bill i am referring to when completing a self assessment.

If this isnt the case, why have i underpaid PAYE so much for 2 years running?

Dazed_and_confused

Your tax code is just a provisional attempt to collect the correct amount of tax.

For a lot of people it will be (roughly) correct but others, including those filing Self Assessment returns, get a calculation after the end of the tax year to resolve any tax owed to HMRC or excess tax owed back to them.

Your Self Assessment calculation is only as good as the figures you enter on your return. Experience on here shows some people get this wrong. But you may have got everything correct and could owe tax say because your tax code (provisionally) included full Personal Allowance when in fact none is due.

This could easily result in a bill of £5k.

You could post the details for one year so we can see if you have made any errors?

daleyland

I think its the personal allowance thing. In 2018/19 my incoe is over £125k which means i lose my personal allowance so i assume the £5k bill is HMRC recouping the allowance they gave me.

Dazed_and_confused wrote: »

Your tax code is just a provisional attempt to collect the correct amount of tax.

For a lot of people it will be (roughly) correct but others, including those filing Self Assessment returns, get a calculation after the end of the tax year to resolve any tax owed to HMRC or excess tax owed back to them.

Your Self Assessment calculation is only as good as the figures you enter on your return. Experience on here shows some people get this wrong. But you may have got everything correct and could owe tax say because your tax code (provisionally) included full Personal Allowance when in fact none is due.

This could easily result in a bill of £5k.

You could post the details for one year so we can see if you have made any errors?

Dazed_and_confused

So going forward you could make certain your tax code doesn't include any Personal Allowance.

More tax to pay each month but less as a lump sum.