Scared of exceeding PSA

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Bigwheels1111 said:

MDMD said:

callum9999 said:

jaypers said:

I don’t understand this fear. If you breach the PSA, you are better off than if you don’t because you are earning more. Simple as that. 

It's mainly greed - they don't want the government wasting their money by running schools or hospitals.

Thankfully I don't hear it very much any more so hopefully it has died out, but I used to hear a depressing number of people turning down promotions etc. because it would "put them in the next tax bracket", and they couldn't comprehend that only the tiny bit of their salary above the line gets the higher rate of tax, not the entire thing. 

Not necessarily. In some edge cases (e.g. if you are about to go into higher rate) £1 of extra income can come with a bill of £200.

You lose £500 of PSA at 0% and it gets taxed at 40%

Three years ago I was getting almost nothing in interest on my savings, now I will need to file a self assessment 
in 2024 onwards.
Due to the base rate rises.

I have already sent off a self assessment for 2022/23 for the first time because my savings interest crept over the £10,000 threshold and I mean it did creep over by £80, but them’s the rules.

And at the end of the form it asked “would you like to add anything else” In the blank box I Stated “ I will very likely buy a house next year (inferring that I won’t have all that lovely interest money for next year)  but am patiently waiting for “my house is worth” to be expunged from the British national psyche.   

callum9999

Hurri said:

callum9999 said:

jaypers said:

I don’t understand this fear. If you breach the PSA, you are better off than if you don’t because you are earning more. Simple as that. 

It's mainly greed - they don't want the government wasting their money by running schools or hospitals.

Thankfully I don't hear it very much any more so hopefully it has died out, but I used to hear a depressing number of people turning down promotions etc. because it would "put them in the next tax bracket", and they couldn't comprehend that only the tiny bit of their salary above the line gets the higher rate of tax, not the entire thing. 

For me it's more about money saving. I want to get as close to my £500 PSA as possible but if I go above, any extra interest is eroded by the tax and I'm getting a lower rate of return on the excess. For example, after I've hit £500 interest, 6% savings at 40% is in effect 3.6% net. I can beat that in an ISA. So for me I want to maximise my return as much as possible, if that's greed, isnt that why we're all here?

I don't consider that being the same thing as deliberately hobbling your income to avoid paying tax though. You're not cutting your income - you're increasing it. 

callum9999

MDMD said:

callum9999 said:

jaypers said:

I don’t understand this fear. If you breach the PSA, you are better off than if you don’t because you are earning more. Simple as that. 

It's mainly greed - they don't want the government wasting their money by running schools or hospitals.

Thankfully I don't hear it very much any more so hopefully it has died out, but I used to hear a depressing number of people turning down promotions etc. because it would "put them in the next tax bracket", and they couldn't comprehend that only the tiny bit of their salary above the line gets the higher rate of tax, not the entire thing. 

Not necessarily. In some edge cases (e.g. if you are about to go into higher rate) £1 of extra income can come with a bill of £200.

You lose £500 of PSA at 0% and it gets taxed at 40%

While a very good point to raise, it doesn't result in your entire salary being taxed at 40% so - yes necessarily! 

EthicsGradient

MDMD said:

callum9999 said:

jaypers said:

I don’t understand this fear. If you breach the PSA, you are better off than if you don’t because you are earning more. Simple as that. 

It's mainly greed - they don't want the government wasting their money by running schools or hospitals.

Thankfully I don't hear it very much any more so hopefully it has died out, but I used to hear a depressing number of people turning down promotions etc. because it would "put them in the next tax bracket", and they couldn't comprehend that only the tiny bit of their salary above the line gets the higher rate of tax, not the entire thing. 

Not necessarily. In some edge cases (e.g. if you are about to go into higher rate) £1 of extra income can come with a bill of £200.

You lose £500 of PSA at 0% and it gets taxed at 40%

I think (thanks to Dazed_and_C0nfused pointing this out earlier this year), the £1 extra doesn't give a full extra bill of £200; but £100. Consider someone earning £49,270, and getting £1,000 interest:
tax paid on salary = (49270-12570) * 20% = 36700 *0.2 = £7,340
£1,000 of the basic rate band remains; but total income = £50,270, so PSA is £1,000, and that means 0% rate on all the interest.
Total tax paid: £7,340

Now give them a £10 raise.

tax paid on salary = (49280-12570) * 20% = 36710 *0.2 = £7,342
£990 of the basic rate band remains; but total income = £50,280, so PSA is £500.
That means the first £500 of interest is in the PSA, at 0%; the next £490 is still in the basic rate band, but not covered by the PSA, so taxed at 20% = 490 * 0.2 = £98
The final £10 of interest is in the higher band, so you pay 10 * 0.4 = £4
Total tax paid: 7342+98+4=£7,444  - which is £104 more, for a £10 raise.

I don't think there's a case where the £500 lost PSA all gets subject to 40% tax, but maybe someone can think of one.

But this does show there can be cases where a simple raise can be less than the extra tax it causes (and when a pension contribution, or even Gift Aid, becomes very, very worthwhile).

DjangoUnchained

many people have to pay tax theyve worked very hard for often poorly paid jobs. Im ok paying tax on money that has just sat in a savings account and appreciate how fortunate i am in having that luxury of having savings.

Hattie627

My sister had a financial adviser who used to say that his company had a policy that "the tax tail shouldn't wag the investment dog". I took this to mean that saving/investment decisions should be decided upon suitability and potential return criteria. Only if two (or more) possible courses of action were equal on these criteria should tax considerations enter the decision-making process. I have to say, though, that it's very difficult not to be influenced by tax considerations.

mebu60

deinoflex said:

The reason I don't exceed the £1000 is because of the messy nature of the collection. You finish your interest year in April, but they don't change your code till - when? 6 months later? They you have to check it, which I wouldn't have a problem with as I keep a log. Then if it's wrong you'd need to talk to them. If it's right, you have the delayed effect of repaying it, it would be easier to just pay a lump sum to repay it. Then, I hear, they base the following year's tax code on the assumption you'll earn the same amount of interest again. So you're stuck in a continuous procedure. Which makes the alternative, make sure you don't exceed it, so much easier, less worry.

I put the excess money into my GIA for next year's S&S ISA.

Select the options on the SA form to make a lump sum payment in the following January. Whether there's then payments on account depends on the amount and the % due relative to the tax collected.

John464

Bigwheels1111 said:

I can’t understand it either.
2 years ago 100k would have given 1k, now 6.2k interest.
Even after tax I would be jumping for joy.

Sorry to burst your bubble but what matters is the Real rate of interest.
Net interest rate minus inflation
So even at 6.2% interest you could be losing more than you were losing last year

masonic

Hattie627 said:

My sister had a financial adviser who used to say that his company had a policy that "the tax tail shouldn't wag the investment dog". I took this to mean that saving/investment decisions should be decided upon suitability and potential return criteria. Only if two (or more) possible courses of action were equal on these criteria should tax considerations enter the decision-making process. I have to say, though, that it's very difficult not to be influenced by tax considerations.

Best to consider the net outcome factoring in all considerations including tax, but not consider tax in isolation when weighing a decision.

John464

callum9999 said:

jaypers said:

I don’t understand this fear. If you breach the PSA, you are better off than if you don’t because you are earning more. Simple as that. 

It's mainly greed - they don't want the government wasting their money by running schools or hospitals.

I am happy to pay for Schools & Hospitals
But not Government corruption and waste