How much can I earn with overtime without going into the higher tax bracket?

Adamc

Hi 

I've been offered a decent overtime rate but I'm wondering how much I can earn before going above the basic tax rate?

Would they assume that if I earned over 1/12 of this amount in any month that I will be on the higher rate of and deduct more in tax as a result? I may do more in some months than others e.g. winter. If so would this be the case even if in previous months of the current tax year I have earned below it? Or would they work it out as I go?

I work for the NHS so some deductions are before tax. 

I've also been offered work as a locum. It's not something I know much about but will consider it as some months have been difficult financially.

Dazed_and_C0nfused

Why are you concerned about paying higher rate tax?

You do realise that you only pay higher rate tax on the amount above your Personal Allowance and basic rate band, not everything.

molerat

(Assuming England / Wales) You need to earn over £3142 per month / £37700 per year taxable before you pay higher rate tax. This rolls up each month so in May it is a total of £6284 and June £9425.  If you breach those totals year to date you will pay higher rate tax.  If in another month your income year to date falls below that threshold you will get some of that tax back. You don't pay tax on "this month's pay" you pay it year to date as you go along, the tax in any one month is tax due year to date - based on x/12ths of your allowance - less tax paid to date = tax due this month so at the end of the year the total paid is correct.

Flugelhorn

usually if you do extra for the NHS, they treat each month separately - the tax code that they have for you is applied to that month only so won't affect the amount of tax you pay in the next month. You may get taxed at higher rate in one month but not in the next - you will find that it all shakes down in the end and over the year there will be adjustments to ensure that you only pay higher rate tax if you earn over the threshold in the year as a whole (so might get a bit of a rebate at some point)

GrumpyDil

molerat said:

(Assuming England / Wales) You need to earn over £3142 per month / £37700 per year taxable before you pay higher rate tax. This rolls up each month so in May it is a total of £6284 and June £9425.  If you breach those totals year to date you will pay higher rate tax.  If in another month your income year to date falls below that threshold you will get some of that tax back. You don't pay tax on "this month's pay" you pay it year to date as you go along, the tax in any one month is tax due year to date less tax paid to date = tax due this month.

Isn't this ignoring the personal allowance of 12570 in the current tax year? 

Grumpy_chap

molerat said:

(Assuming England / Wales) You need to earn over £3142 per month / £37700 per year taxable before you pay higher rate tax. 

I've bolded the small but important word in that.  The personal allowance is earned before taxable pay.  That is £12,570 so most people can earn just over £50k before going into the 40% band.

There is no reason to shy away from earning more as it is only the amount over the threshold that is taxed at the higher rate.  

[Deleted User]

As an aside - locums are self employed and you need to register as such. They are also responsible for declaring income to the NHS pension scheme. 

SiliconChip

Grumpy_chap said:

molerat said:

(Assuming England / Wales) You need to earn over £3142 per month / £37700 per year taxable before you pay higher rate tax. 

There is no reason to shy away from earning more as it is only the amount over the threshold that is taxed at the higher rate.  

The OP should also bear in mind that the marginal rate will also be reduced for earnings over £967 per week when the lower rate of employees NI will be paid.

Adamc

Thanks. I actually do earn a little over £3142 taxable. So overtime at 40% tax is a lot less appealing. 

I've done a few hours extra yesterday to cover sickness and earlier this week as a last resort but I am really feeling it now.  

Albermarle

You could make enough extra pension contributions to get tax relief of 40% on the contributions.
Some or all of the relief, would go into the pension rather than back to you, but it would maybe make the overtime more worthwhile, knowing you would benefit from an increased pension/earlier retirement.

[Deleted User]

Albermarle said:

You could make enough extra pension contributions to get tax relief of 40% on the contributions.
Some or all of the relief, would go into the pension rather than back to you, but it would maybe make the overtime more worthwhile, knowing you would benefit from an increased pension/earlier retirement.

Yes - that may be true, but you could end up paying more tax on the extra pension when you retire.  It's called deferred tax!!  No such thing as a free lunch I'm afraid.