Going into the Higher Tax Band 2023/24

wadrob32

Hi all,

I am after some info if possible? I have spoken to HRMC concerned that I will be entering the higher Tax band 40% as I get towards the end of the financial year. I wanted some info to see what happens as I go into this higher band. However the information I got from them was not convincing and very confusing.

This year for the first time ever due to overtime I will be going into the 40% TAX bracket. My Jan 24 pay will see me pass £51000, with the final 2 months to April taking me up to approx 58000 gross for the 23/24 tax year.

I am on a cumulative tax basis and 20% tax code.

1. Will I pay a full 40% in Feb and March? Thus example £7000 at 40% = £2800 (£3500 at 40% = £1400)
2. If I owe any tax from the 23/24 year, how will it me collected, will my tax code change to satisfy this in the next year 24/25. Can I make a one off payment?
3. Will my estimated income for 2024/25 be based on my 2023/24 income? HRMC said that it would be based on 23/24 higher income and I would have to change my estimated income via Gov Gateway for next year 24/25?

Many thanks in advance for any info you can give against my Feb/March 2024/24 income, so I can plan ahead with my outgoings.

zagfles

You're probably already paying 40% tax, what was your December taxable pay to date? If over about £37700 PAYE will already be taxing you at 40% assuming a normal 1257L tax code.

Dazed_and_C0nfused

1.  You should already be paying some 40% tax.  Unless your code is BR (😳).

2.  Why do you think you will owe tax (you might do but you haven't said why).

3.  Yes, I think HMRC will base your 2024-25 tax code (calculated about now) on your latest pay info, so December 2023 or January 2024 pay details.  You can update on your Personal Tax Account but it doesn't always impact your tax code.

Wyndham

zagfles said:

You're probably already paying 40% tax, what was your December taxable pay to date? If over about £37700 PAYE will already be taxing you at 40% assuming a normal 1257L tax code.

You've not allowed for the personal allowance. Assuming a tax code of 1257L, the personal allowance, or the amount you can earn before you have to pay any tax is £12,570. Earn more than that, and the additional income is taxed at 20% for the next £37,700.

You only go into the 40% tax band once you've reached the personal allowance and the maximum on the basic rate added together. In this example that's £12,570 + £37,700 = £50,270. Any income after this is taxed at 40%.

OP - if you're looking at an income of £58,000, then you will owe 40% tax on £58,000 - £50,270 = £7,730. 40% of this is £3,092. You could also think of it another way - you would have paid £1,546 on this anyway (at 20% tax), so the extra you will have to pay is £1,546. As you've got an extra £7,000 in your pay packet, this really isn't too bad. I think from your original post you may be assuming that you'll have to pay 40% on ALL the income? This isn't the case.

At the end of the year, I advise you to do your own calculation, based on the year, and work out your own figures. It's better to think in years rather than months, as tax is actually a yearly bill, but employers (generally) split it into months so it's taken throughout the year rather than as a lump sum at the end. You may find that you've underpaid tax, or you may find that you have overpaid tax. HMRC should sort it out with your tax code for next year, but they may not, and it may well be worth you contacting them again when you know what has actually happened, rather than what may happen.

Hope this helps - tax can sometimes be taxing!!!!!

Dazed_and_C0nfused

Wyndham said:

zagfles said:

You're probably already paying 40% tax, what was your December taxable pay to date? If over about £37700 PAYE will already be taxing you at 40% assuming a normal 1257L tax code.

You've not allowed for the personal allowance. Assuming a tax code of 1257L, the personal allowance, or the amount you can earn before you have to pay any tax is £12,570. Earn more than that, and the additional income is taxed at 20% for the next £37,700.

You only go into the 40% tax band once you've reached the personal allowance and the maximum on the basic rate added together. In this example that's £12,570 + £37,700 = £50,270. Any income after this is taxed at 40%.

OP - if you're looking at an income of £58,000, then you will owe 40% tax on £58,000 - £50,270 = £7,730. 40% of this is £3,092. You could also think of it another way - you would have paid £1,546 on this anyway (at 20% tax), so the extra you will have to pay is £1,546. As you've got an extra £7,000 in your pay packet, this really isn't too bad. I think from your original post you may be assuming that you'll have to pay 40% on ALL the income? This isn't the case.

At the end of the year, I advise you to do your own calculation, based on the year, and work out your own figures. It's better to think in years rather than months, as tax is actually a yearly bill, but employers (generally) split it into months so it's taken throughout the year rather than as a lump sum at the end. You may find that you've underpaid tax, or you may find that you have overpaid tax. HMRC should sort it out with your tax code for next year, but they may not, and it may well be worth you contacting them again when you know what has actually happened, rather than what may happen.

Hope this helps - tax can sometimes be taxing!!!!!

I suspect the £37,700 was a reference to 9/12ths of the basic rate limit inclusive of the PA

wadrob32

Thank you and sorry I was calculating my Gross earnings and not looking at Tax bands at this time. I have just got my Jan 24 Pay Slip. So I have 2 x codes and claim the marriage entitlement. I am on 185M against my employment salary, Which is currently 37552 taxable pay to Jan 24 pay to date.
Then I have a 1200 tax code against my pension 11000 approx pay to date Jan 24.

Wyndham

Dazed_and_C0nfused said:

Wyndham said:

zagfles said:

You're probably already paying 40% tax, what was your December taxable pay to date? If over about £37700 PAYE will already be taxing you at 40% assuming a normal 1257L tax code.

You've not allowed for the personal allowance. Assuming a tax code of 1257L, the personal allowance, or the amount you can earn before you have to pay any tax is £12,570. Earn more than that, and the additional income is taxed at 20% for the next £37,700.

You only go into the 40% tax band once you've reached the personal allowance and the maximum on the basic rate added together. In this example that's £12,570 + £37,700 = £50,270. Any income after this is taxed at 40%.

OP - if you're looking at an income of £58,000, then you will owe 40% tax on £58,000 - £50,270 = £7,730. 40% of this is £3,092. You could also think of it another way - you would have paid £1,546 on this anyway (at 20% tax), so the extra you will have to pay is £1,546. As you've got an extra £7,000 in your pay packet, this really isn't too bad. I think from your original post you may be assuming that you'll have to pay 40% on ALL the income? This isn't the case.

At the end of the year, I advise you to do your own calculation, based on the year, and work out your own figures. It's better to think in years rather than months, as tax is actually a yearly bill, but employers (generally) split it into months so it's taken throughout the year rather than as a lump sum at the end. You may find that you've underpaid tax, or you may find that you have overpaid tax. HMRC should sort it out with your tax code for next year, but they may not, and it may well be worth you contacting them again when you know what has actually happened, rather than what may happen.

Hope this helps - tax can sometimes be taxing!!!!!

I suspect the £37,700 was a reference to 9/12ths of the basic rate limit inclusive of the PA

Ah! Maybe. Coincidence of figures is not always helpful

Dazed_and_C0nfused

Wyndham said:

Dazed_and_C0nfused said:

Wyndham said:

zagfles said:

You're probably already paying 40% tax, what was your December taxable pay to date? If over about £37700 PAYE will already be taxing you at 40% assuming a normal 1257L tax code.

You've not allowed for the personal allowance. Assuming a tax code of 1257L, the personal allowance, or the amount you can earn before you have to pay any tax is £12,570. Earn more than that, and the additional income is taxed at 20% for the next £37,700.

You only go into the 40% tax band once you've reached the personal allowance and the maximum on the basic rate added together. In this example that's £12,570 + £37,700 = £50,270. Any income after this is taxed at 40%.

OP - if you're looking at an income of £58,000, then you will owe 40% tax on £58,000 - £50,270 = £7,730. 40% of this is £3,092. You could also think of it another way - you would have paid £1,546 on this anyway (at 20% tax), so the extra you will have to pay is £1,546. As you've got an extra £7,000 in your pay packet, this really isn't too bad. I think from your original post you may be assuming that you'll have to pay 40% on ALL the income? This isn't the case.

At the end of the year, I advise you to do your own calculation, based on the year, and work out your own figures. It's better to think in years rather than months, as tax is actually a yearly bill, but employers (generally) split it into months so it's taken throughout the year rather than as a lump sum at the end. You may find that you've underpaid tax, or you may find that you have overpaid tax. HMRC should sort it out with your tax code for next year, but they may not, and it may well be worth you contacting them again when you know what has actually happened, rather than what may happen.

Hope this helps - tax can sometimes be taxing!!!!!

I suspect the £37,700 was a reference to 9/12ths of the basic rate limit inclusive of the PA

Ah! Maybe. Coincidence of figures is not always helpful

Very true!

Dazed_and_C0nfused

wadrob32 said:

Thank you and sorry I was calculating my Gross earnings and not looking at Tax bands at this time. I have just got my Jan 24 Pay Slip. So I have 2 x codes and claim the marriage entitlement. I am on 185M against my employment salary, Which is currently 37552 taxable pay to Jan 24 pay to date.
Then I have a 1200 tax code against my pension 11000 approx pay to date Jan 24.

Ok, so based on that at the very least you will owe ~£500 for the Marriage Allowance.

HMRC will review things in the summer and tell you what is owed.  They will usually adjust your 2025-26 to collect the extra tax due.

You should provide as accurate as possible estimates for 2024-25 once that option is available on your Personal Tax Account.

wadrob32

Thank you all for your time, appreciated. I feel I am better informed.

zagfles

Dazed_and_C0nfused said:

Wyndham said:

zagfles said:

You're probably already paying 40% tax, what was your December taxable pay to date? If over about £37700 PAYE will already be taxing you at 40% assuming a normal 1257L tax code.

You've not allowed for the personal allowance. Assuming a tax code of 1257L, the personal allowance, or the amount you can earn before you have to pay any tax is £12,570. Earn more than that, and the additional income is taxed at 20% for the next £37,700.

You only go into the 40% tax band once you've reached the personal allowance and the maximum on the basic rate added together. In this example that's £12,570 + £37,700 = £50,270. Any income after this is taxed at 40%.

OP - if you're looking at an income of £58,000, then you will owe 40% tax on £58,000 - £50,270 = £7,730. 40% of this is £3,092. You could also think of it another way - you would have paid £1,546 on this anyway (at 20% tax), so the extra you will have to pay is £1,546. As you've got an extra £7,000 in your pay packet, this really isn't too bad. I think from your original post you may be assuming that you'll have to pay 40% on ALL the income? This isn't the case.

At the end of the year, I advise you to do your own calculation, based on the year, and work out your own figures. It's better to think in years rather than months, as tax is actually a yearly bill, but employers (generally) split it into months so it's taken throughout the year rather than as a lump sum at the end. You may find that you've underpaid tax, or you may find that you have overpaid tax. HMRC should sort it out with your tax code for next year, but they may not, and it may well be worth you contacting them again when you know what has actually happened, rather than what may happen.

Hope this helps - tax can sometimes be taxing!!!!!

I suspect the £37,700 was a reference to 9/12ths of the basic rate limit inclusive of the PA

Indeed. PAYE will use n/12th of the tax free amount and n/12th of the basic rate band where n is the tax month (usually 9 in the case of a December payslip), so it's not true that you need to exceed £50270 to pay 40% in PAYE with a 1257L tax code, you will pay 40% tax once you've exceeded £50270*n/12. Assuming a cumulative tax code. So in Dec £37702

Sometimes people temporarily enter 40% tax in PAYE but then get refunded later in the tax year if their earnings are front loaded eg a big bonus/overtime early in the tax year but overall taxable income ends up under £50270.