40% income tax

oswestry123

Hi money saving experts and fonts of all knowledge,


I hope you can help me. I have recently been lucky enough to move into the higher tax band on my income.


I earn now 51k income and get a bonus every june of around 4.5k, I also work another job as I enjoy it on the side earning around 2k a year on that one.


I think I will be ok in the lower tax band for this year as I have had a significant pay rise in the last month or so but for next year how will the tax work on a month on month basis.


I guess what I really want to know is how and when will I be taxed in the higher rate, will they do it once I hit the 50k threshold, effecting meaning my last few pay checks of the FY will be rubbish or spread over the 12 months, like how will they know what I am going to earn and how to tax me accordingly I guess.


Thanks all,


Jody

TadleyBaggie

It will be spread evenly throughout the year, so monthly most of your taxable income will be at the basic rate and a small amount with be at the higher rate.

molerat

The tax system works on 1/12ths monthly. £51K may not put you into 40% depending on any allowable deductions such as pension but if you are a 40% tax payer on your base salary you will start paying in April.

Dazed_and_confused

If you are on a cumulative tax code, which you should be from 6 April 2020 for definite then you pay the 40% tax as you go along as the PAYE tax is based on your annualised earnings.

HMRC don't do that it's your employer.

So if you have taxable pay of £4,500 in month 1 of the tax year that equates to annual taxable pay of £54,000. So you would pay a bit of 40% tax (or a lot if Scottish resident for tax purposes).

Then in month 2 you get paid say £3,500. So your annualised pay at that point is only £48,000 so your tax that month would be adjusted to reflect the fact that no higher rate tax was payable (unless Scottish resident).

And so on throughout the year providing you are on a cumulative tax code.

Don't forget as well that tax is rarely based on salary. You may have a salary of £50,000 but if you make net pay pension contributions of say 10% then your taxable pay, the bit that counts for tax purposes, would only be £45,000.

You might want to check your tax codes for new tax year in March and make sure that your second job has the correct one. If you expect to pay 40% tax on your main job then you should be on D0 code for the other job, not BR (or SD1 tax code if Scottish resident).