40% tax threshold

leew86

Hello 

I currently have 2 jobs, ones my fulltime employment (PAYE) and also self employed (online selling business). For example salary on my full time job is 25k and my total sales income on my business is 40k. But if my net profits are around 18k after fees and costs etc. Would the initial 40k+25k take me over the threshold into paying 40% or does it go off net profit? 

Hope that makes sense 

Lee

Dazed_and_C0nfused

You are only taxed on the profit you declare on your Self Assesment return.

So using your example you would have taxable income of £43k.  Assuming "salary" refers to your taxable salary.  Most people's taxable salary is less than their actual salary due to pension contributions.

leew86

Dazed_and_C0nfused said:

You are only taxed on the profit you declare on your Self Assesment return.

So using your example you would have taxable income of £43k.  Assuming "salary" refers to your taxable salary.  Most people's taxable salary is less than their actual salary due to pension contributions.

 Thanks. The salary is gross on the PAYE job 

oldbikebloke

leew86 said:
 Thanks. The salary is gross on the PAYE job 

25k gross salary (deduct pension contributions if relevant) + net profit (18k gross selling income less costs) LESS personal allowance 12,500 = nowhere near the 40% tax bracket which starts at £37,500 

I assume you have been completing your tax return correctly for online business, so surely you understood you are being taxed on net profit, not gross sales 

leew86

oldbikebloke said:

leew86 said:
 Thanks. The salary is gross on the PAYE job 

25k gross salary (deduct pension contributions if relevant) + net profit (18k gross selling income less costs) LESS personal allowance 12,500 = nowhere near the 40% tax bracket which starts at £37,500 

I assume you have been completing your tax return correctly for online business, so surely you understood you are being taxed on net profit, not gross sales 

oldbikebloke said:

leew86 said:
 Thanks. The salary is gross on the PAYE job 

25k gross salary (deduct pension contributions if relevant) + net profit (18k gross selling income less costs) LESS personal allowance 12,500 = nowhere near the 40% tax bracket which starts at £37,500 

I assume you have been completing your tax return correctly for online business, so surely you understood you are being taxed on net profit, not gross sales 

I thought 40% started over 50k not £37,500?

uknick

£50k earnings less the £12,500 personal allowance gets you to the £37,500, where anything over that can be taxed at a rate higher than 20%.  Think of it as, 1st £12,500 taxed at 0%, next £37,500 taxed at 20%, then next £100,000 taxed at 40% and finally anything over that taxed at 45%. 

[Deleted User]

uknick said:

£50k earnings less the £12,500 personal allowance gets you to the £37,500, where anything over that can be taxed at a rate higher than 20%.  Think of it as, 1st £12,500 taxed at 0%, next £37,500 taxed at 20%, then next £100,000 taxed at 40% and finally anything over that taxed at 45%. 

Perhaps better to think : 1st £12,500 taxed at 0%, next £37,500 taxed at 20%, then next £50000 taxed at 40%, next £25000 at 60%, next £25000 at 40% and finally anything over that taxed at 45%. 

oldbikebloke

leew86 said:
I thought 40% started over 50k not £37,500?

You are making the common mistake of not understanding how to include the personal allowance

12,500 is tax free, the next 37,500 is taxed at 20% giving a total so far of £50,000, hence you could say higher rate starts at >50, but technically it does not. It starts at >37,500, since the tax threshold is in relation to the TAXABLE earnings and that amount is always AFTER the PA has been deducted, and the PA is tax free, it is not "taxed" at 0%. 

It is an important distinction, because when you have other types of income making you your total income subject to tax, such as dividends, as with them understanding comes for realising that you get 2k taxed @ 0% under the so called dividend "allowance" which is not a tax free deduction, as it is 2k that is still included in your total TAXABLE income, but subject to tax at 0% 

leew86

Thank you all for the input. It's making abit more sense now. So the upcoming tax year my predicted income will be £20500 on my PAYE job. My second income will be around £40ishk turnover with around 15-17k profit after fees and expenses. So combined amount will be taxed at 20% is that right? 

Thanks 

[Deleted User]

leew86 said:

Thank you all for the input. It's making abit more sense now. So the upcoming tax year my predicted income will be £20500 on my PAYE job. My second income will be around £40ishk turnover with around 15-17k profit after fees and expenses. So combined amount will be taxed at 20% is that right? 

Thanks 

After taking off the first 12500, yes!