Confused about income tax brackets

Advice_Needed18

Hello,

I'm young and just starting my career - I'm confused regarding income tax brackets.

So if the basic rate for £12571 to £50270 is 20% and the higher rate for £50271 to £150000 is 40%, surely there are some examples where someone in the higher tax bracket ends up with a lower take-home amount despite their salary being higher than someone with a basic rate?

For example:

If someone makes £42k, excluding pension payments, student loans etc, if they're taxed 20%, their take home for the year is £33.6k.

If someone makes £55k, excluding pension, student loans etc, if they're taxed 40% their take-home for the year is £33k.

So in this example the person with a £42k salary takes home more than the person with a £55k salary - how tf does this make sense?! If this is the case, why bother making a £55k salary if you can take home more with a lower salary? Am I missing something here?
And how are higher earners able to minimise how much they're taxed if what I've typed above is correct?
Thanks in advance 

molerat

Income between £12571 and £50270 is taxed at 20%, only the additional income above £50270 is taxed at 40%. Someone on £42K would take home £2685 per month after tax and NI (£32220 pa) giving 23.3% of their income to the man, someone on £55K would take home £3382 (£40584 pa) giving 26.2%.

Dazed_and_C0nfused

If someone makes £42k, excluding pension payments, student loans etc, if they're taxed 20%, their take home for the year is £33.6k

Their pay after tax would be £36,114 as you have forgotten to take into account their Personal Allowance

If someone makes £55k, excluding pension, student loans etc, if they're taxed 40% their take-home for the year is £33k.

Their pay after tax would be £45,568 as you have forgotten to take into account their Personal Allowance and that the next £37,700 is taxed at 20%, not 40%.

[Deleted User]

Advice_Needed18 said:

Hello,

I'm young and just starting my career - I'm confused regarding income tax brackets.

So if the basic rate for £12571 to £50270 is 20% and the higher rate for £50271 to £150000 is 40%, surely there are some examples where someone in the higher tax bracket ends up with a lower take-home amount despite their salary being higher than someone with a basic rate?

For example:

If someone makes £42k, excluding pension payments, student loans etc, if they're taxed 20%, their take home for the year is £33.6k.

If someone makes £55k, excluding pension, student loans etc, if they're taxed 40% their take-home for the year is £33k.

So in this example the person with a £42k salary takes home more than the person with a £55k salary - how tf does this make sense?! If this is the case, why bother making a £55k salary if you can take home more with a lower salary? Am I missing something here?
And how are higher earners able to minimise how much they're taxed if what I've typed above is correct?
Thanks in advance 

You seem to think that, if you are a higher rate taxpayer, all of the salary is taxed at the higher rate which would be extremely unfair. So someone on a salary of £55000 would pay no tax on the first 12570, 20% on the next 37700 and 40% on the remainder.

Advice_Needed18

Thank you for all your replies! 

KingOfSnake

And, if you are a Scottish taxpayers, where you save a massive £21 in the lower (19%) band and then get stiffed for an extra 1% in the intermediate rate (which also starts a lot lower, so you start paying extra sooner as well).