Higher Rate Tax

Scotty7

Hi, I'm really quite clueless when it comes to income tax and hope somebody might be able to help.

My current an annual salary is £46,500 however I can work unlimited overtime but I'm unsure how the Higher Tax Rate will kick in once I hit £50k? Does it start as soon as I hit the threshold, so for instance, if I make £50k by December, would be Jan, Feb & Mar pay all be taxed at the Higher 40% rate? 

Also, is the personal tax allowance deducted from the £50k threshold, so for instance, am I able to earn £50k plus the personal tax allowance before paying the higher rate?

Thanks for your help

chrisbur

The actual figure is slightly higher than £50K and this assumes that you are on the standard tax allowance code.
So assuming the standard code of 1257L ( slightly different for Scottish tax and no idea about Welsh)
Up to 12570 no tax
12571 to 50270 20% tax 
50271 to 150000 40% tax
Then 45% and gets a bit complicated over 100000 so all figures I have used assume this has not happened.
If you have a tax code different to 1257L then all these figures would change for PAYE
The PAYE system is designed to avoid the way you have suggested as much as possible the tax is evened out over the year.  It will also self correct if you move between bands.

The figures given are only actually applied to your last payment in the tax year.
When all is running smoothly you get what is called a cumulative tax code this gives you each payday a new allowance for each tax level.
So for month 1 you get 1/12 of the tax free allowance 1/12 of the 20% band 1/12 of the 40% band
Month 2 you get 2/12 of each allowance
Month 3 you get 3/12 and so until you get to month 12 when you get 12/12 ie the full allowance

Each month these allowances are set against your taxable gross to date and the total tax due is calculated, from that is deducted tax already paid to get the tax due that month.
So for example say you are up to month 3 (these are just random figures to illustrate)
You get 3/12 of all allowances which are set against you earnings that are taxable for all three months. 
Say this gives you  1885 due at 20% and 200 at 40% to give a total of £2085 
From this tax paid in the first two months say £1400 is deducted to leave £685 to pay for month 3

In this way assume you get to month 4 and your earnings have dropped a fair bit so that now your 4/12 20% allowance covers everything you have earned to date. The tax calculated will no longer include any tax at 40% so in affect that 40% tax is converted to 20% tax and would reduce your tax for that month.

This goes on month by month using the proportion of your allowances that apply to the tax month set against your total taxable income to that month less tax already deducted in previous months.  In this way you may go into or out of various tax bands and the tax you pay will be adjusted for these changes.