Tax Thresholds - Flexible?

Ocelot

eskbanker said:

Ocelot said:

eskbanker said:

Personal tax allowances don't get increased above the standard figure, so the question is moot - there are various allowances and reliefs that may reduce tax liability, but the PTA itself doesn't change, so you'd need to clarify your scenario in more detail in order to determine potential tax liabilities....

I thought moot meant debatable.

That is one meaning of the word, but it's also (perhaps confusingly) used to denote something where debate is no longer meaningful:

1.  subject or open to debate

a moot point

2. having no practical relevance

Definition 2 is what I meant, although this may be more widely associated with American English than British, apologies for any confusion!

My remark was somewhat flippant, no need to apologise!

As you say, it is the American meaning of the word which some people over here are (annoyingly) using more and more instead of the word 'academic'.

Ocelot

MrMoff said:

Ocelot said:

Your HR threshold is PTA + 37,770. Anything above is taxed at 40%. 

I have been paying HR tax for years due to tax allowance being lowered.

Ocelot, many thanks, This is the crux of my question.

Lets forget about Marriage Allowance as its the Tax Free Amount which is bothering me, and how it effects the LR and HR thresholds

When calculating a Tax Year HMRC has stated that I owed them £1000 from a previous year - Fair enough, it was from additional income which wasn't expected.

So they stated that to get this £1000 back from me they would reduce my Tax Fee Amount for the next year

So basically instead of my Tax Free Amount being £12,570, they reduced it by £5000 to £7,570 to allow for the £1000 ( £1000 x 5)

Now then this is where I have major issues.

As in effect this now my Tax burden for the year -----

My Income is £50,000

I pay no tax on the first £7,570 ( this is my adjusted Tax free Amount)

I pay 20% on the next £37,700 = £7,540

I then pay 40% on the remaining £4,800 = £1,920

Giving me a total tax bill of £9,460

However if I didn't owe them the £1000 from the previous year my tax would just have been the following

I pay no tax on the first £12,570

I pay 20% on the next 37,500 = £7,500

I have nothing more to pay as I have nothing left to tax as I did not exceed the lower threshold of £37,700

But you can see owing them £1000 actually cost me £1,960

Surely this cannot be right? they have gained £960 from nowhere!

Irrespective of the terminology as to whether it is your tax free amount lowered or not, I agree that in practice, your higher rate threshold has been lowered (as mine has for the last 7 years). At one point I was paying higher rate tax on any income just over 40,000.

I'm not complaining about this, by the way - it is their way of claiming back the tax owed. However it is sometimes hard to follow their calculations, especially as they usually estimate the interest you will be receiving for the coming tax year based on last year.

RG2015

Ocelot said:

MrMoff said:

Ocelot said:

Your HR threshold is PTA + 37,770. Anything above is taxed at 40%. 

I have been paying HR tax for years due to tax allowance being lowered.

Ocelot, many thanks, This is the crux of my question.

Lets forget about Marriage Allowance as its the Tax Free Amount which is bothering me, and how it effects the LR and HR thresholds

When calculating a Tax Year HMRC has stated that I owed them £1000 from a previous year - Fair enough, it was from additional income which wasn't expected.

So they stated that to get this £1000 back from me they would reduce my Tax Fee Amount for the next year

So basically instead of my Tax Free Amount being £12,570, they reduced it by £5000 to £7,570 to allow for the £1000 ( £1000 x 5)

Now then this is where I have major issues.

As in effect this now my Tax burden for the year -----

My Income is £50,000

I pay no tax on the first £7,570 ( this is my adjusted Tax free Amount)

I pay 20% on the next £37,700 = £7,540

I then pay 40% on the remaining £4,800 = £1,920

Giving me a total tax bill of £9,460

However if I didn't owe them the £1000 from the previous year my tax would just have been the following

I pay no tax on the first £12,570

I pay 20% on the next 37,500 = £7,500

I have nothing more to pay as I have nothing left to tax as I did not exceed the lower threshold of £37,700

But you can see owing them £1000 actually cost me £1,960

Surely this cannot be right? they have gained £960 from nowhere!

Irrespective of the terminology as to whether it is your tax free amount lowered or not, I agree that in practice, your higher rate threshold has been lowered (as mine has for the last 7 years). At one point I was paying higher rate tax on any income just over 40,000.

I am struggling to understand this issue. I have a vested interest as my income is creeping up towards the HR threshold.

Some are saying you only pay HR tax if your total income is above £50,270. Now you are saying that you were paying HR tax on income just over £40,000.

Would you be willing to explain how this happened?

Dazed_and_C0nfused

RG2015 said:

Ocelot said:

MrMoff said:

Ocelot said:

Your HR threshold is PTA + 37,770. Anything above is taxed at 40%. 

I have been paying HR tax for years due to tax allowance being lowered.

Ocelot, many thanks, This is the crux of my question.

Lets forget about Marriage Allowance as its the Tax Free Amount which is bothering me, and how it effects the LR and HR thresholds

When calculating a Tax Year HMRC has stated that I owed them £1000 from a previous year - Fair enough, it was from additional income which wasn't expected.

So they stated that to get this £1000 back from me they would reduce my Tax Fee Amount for the next year

So basically instead of my Tax Free Amount being £12,570, they reduced it by £5000 to £7,570 to allow for the £1000 ( £1000 x 5)

Now then this is where I have major issues.

As in effect this now my Tax burden for the year -----

My Income is £50,000

I pay no tax on the first £7,570 ( this is my adjusted Tax free Amount)

I pay 20% on the next £37,700 = £7,540

I then pay 40% on the remaining £4,800 = £1,920

Giving me a total tax bill of £9,460

However if I didn't owe them the £1000 from the previous year my tax would just have been the following

I pay no tax on the first £12,570

I pay 20% on the next 37,500 = £7,500

I have nothing more to pay as I have nothing left to tax as I did not exceed the lower threshold of £37,700

But you can see owing them £1000 actually cost me £1,960

Surely this cannot be right? they have gained £960 from nowhere!

Irrespective of the terminology as to whether it is your tax free amount lowered or not, I agree that in practice, your higher rate threshold has been lowered (as mine has for the last 7 years). At one point I was paying higher rate tax on any income just over 40,000.

I am struggling to understand this issue. I have a vested interest as my income is creeping up towards the HR threshold.

Some are saying you only pay HR tax if your total income is above £50,270. Now you are saying that you were paying HR tax on income just over £40,000.

Would you be willing to explain how this happened?

With the exception of Scottish residents you do only pay higher rate tax over £50,270.

People are getting confused between what happens (provisionally) under PAYE and how your income tax liability is calculated.

Unless you have applied for Marriage Allowance or have adjusted net income of £100,002 or more you will have a Personal Allowance of £12,570.

Say you have expected earnings (or pension income) of £50,270 for 2024-25, owed £1,000 in underpaid tax and had £300 of untaxed interest.

Your tax code allowances would be 10,070 giving tax code 1007L.

By the end of the tax year your employer or pension payer would have deducted tax of £8,536.40 from the earnings (or pension) of £50,270.

Your tax liability for that year would be calculated like this,

Earnings/pension £50,270
Untaxed interest £300
Total taxable income £50,570

Less Personal Allowance £12,570 leaves £38,000 to be taxed,

£37,700 x 20% = £7,540
£300 x 0% = £0.00

Total tax liability = £7,540, pus unpaid tax from prior tax year(s) £1,000 = £8,540

Less tax deducted at source £8,536.40

Tax owing £3.60 (this would usually be ignored by HMRC).

The deduction in the tax code for underpaid tax is based on your expected earnings/pension income so if the actual amount was different to the estimate used in the tax code it can mean not all the tax is collected or you could have paid too much.

BoGoF

RG2015 said:

Ocelot said:

MrMoff said:

Ocelot said:

Your HR threshold is PTA + 37,770. Anything above is taxed at 40%. 

I have been paying HR tax for years due to tax allowance being lowered.

Ocelot, many thanks, This is the crux of my question.

Lets forget about Marriage Allowance as its the Tax Free Amount which is bothering me, and how it effects the LR and HR thresholds

When calculating a Tax Year HMRC has stated that I owed them £1000 from a previous year - Fair enough, it was from additional income which wasn't expected.

So they stated that to get this £1000 back from me they would reduce my Tax Fee Amount for the next year

So basically instead of my Tax Free Amount being £12,570, they reduced it by £5000 to £7,570 to allow for the £1000 ( £1000 x 5)

Now then this is where I have major issues.

As in effect this now my Tax burden for the year -----

My Income is £50,000

I pay no tax on the first £7,570 ( this is my adjusted Tax free Amount)

I pay 20% on the next £37,700 = £7,540

I then pay 40% on the remaining £4,800 = £1,920

Giving me a total tax bill of £9,460

However if I didn't owe them the £1000 from the previous year my tax would just have been the following

I pay no tax on the first £12,570

I pay 20% on the next 37,500 = £7,500

I have nothing more to pay as I have nothing left to tax as I did not exceed the lower threshold of £37,700

But you can see owing them £1000 actually cost me £1,960

Surely this cannot be right? they have gained £960 from nowhere!

Irrespective of the terminology as to whether it is your tax free amount lowered or not, I agree that in practice, your higher rate threshold has been lowered (as mine has for the last 7 years). At one point I was paying higher rate tax on any income just over 40,000.

I am struggling to understand this issue. I have a vested interest as my income is creeping up towards the HR threshold.

Some are saying you only pay HR tax if your total income is above £50,270. Now you are saying that you were paying HR tax on income just over £40,000.

Would you be willing to explain how this happened?

No they can't explain, because it didn't happen.

Dazed_and_C0nfused

BoGoF said:

RG2015 said:

Ocelot said:

MrMoff said:

Ocelot said:

Your HR threshold is PTA + 37,770. Anything above is taxed at 40%. 

I have been paying HR tax for years due to tax allowance being lowered.

Ocelot, many thanks, This is the crux of my question.

Lets forget about Marriage Allowance as its the Tax Free Amount which is bothering me, and how it effects the LR and HR thresholds

When calculating a Tax Year HMRC has stated that I owed them £1000 from a previous year - Fair enough, it was from additional income which wasn't expected.

So they stated that to get this £1000 back from me they would reduce my Tax Fee Amount for the next year

So basically instead of my Tax Free Amount being £12,570, they reduced it by £5000 to £7,570 to allow for the £1000 ( £1000 x 5)

Now then this is where I have major issues.

As in effect this now my Tax burden for the year -----

My Income is £50,000

I pay no tax on the first £7,570 ( this is my adjusted Tax free Amount)

I pay 20% on the next £37,700 = £7,540

I then pay 40% on the remaining £4,800 = £1,920

Giving me a total tax bill of £9,460

However if I didn't owe them the £1000 from the previous year my tax would just have been the following

I pay no tax on the first £12,570

I pay 20% on the next 37,500 = £7,500

I have nothing more to pay as I have nothing left to tax as I did not exceed the lower threshold of £37,700

But you can see owing them £1000 actually cost me £1,960

Surely this cannot be right? they have gained £960 from nowhere!

Irrespective of the terminology as to whether it is your tax free amount lowered or not, I agree that in practice, your higher rate threshold has been lowered (as mine has for the last 7 years). At one point I was paying higher rate tax on any income just over 40,000.

I am struggling to understand this issue. I have a vested interest as my income is creeping up towards the HR threshold.

Some are saying you only pay HR tax if your total income is above £50,270. Now you are saying that you were paying HR tax on income just over £40,000.

Would you be willing to explain how this happened?

No they can't explain, because it didn't happen.

Well it does, but only for payroll purposes, when you look at the overall tax liability at the end of the year you aren't necessarily going to be liable for higher rate tax.

BoGoF

Dazed_and_C0nfused said:

BoGoF said:

RG2015 said:

Ocelot said:

MrMoff said:

Ocelot said:

Your HR threshold is PTA + 37,770. Anything above is taxed at 40%. 

I have been paying HR tax for years due to tax allowance being lowered.

Ocelot, many thanks, This is the crux of my question.

Lets forget about Marriage Allowance as its the Tax Free Amount which is bothering me, and how it effects the LR and HR thresholds

When calculating a Tax Year HMRC has stated that I owed them £1000 from a previous year - Fair enough, it was from additional income which wasn't expected.

So they stated that to get this £1000 back from me they would reduce my Tax Fee Amount for the next year

So basically instead of my Tax Free Amount being £12,570, they reduced it by £5000 to £7,570 to allow for the £1000 ( £1000 x 5)

Now then this is where I have major issues.

As in effect this now my Tax burden for the year -----

My Income is £50,000

I pay no tax on the first £7,570 ( this is my adjusted Tax free Amount)

I pay 20% on the next £37,700 = £7,540

I then pay 40% on the remaining £4,800 = £1,920

Giving me a total tax bill of £9,460

However if I didn't owe them the £1000 from the previous year my tax would just have been the following

I pay no tax on the first £12,570

I pay 20% on the next 37,500 = £7,500

I have nothing more to pay as I have nothing left to tax as I did not exceed the lower threshold of £37,700

But you can see owing them £1000 actually cost me £1,960

Surely this cannot be right? they have gained £960 from nowhere!

Irrespective of the terminology as to whether it is your tax free amount lowered or not, I agree that in practice, your higher rate threshold has been lowered (as mine has for the last 7 years). At one point I was paying higher rate tax on any income just over 40,000.

I am struggling to understand this issue. I have a vested interest as my income is creeping up towards the HR threshold.

Some are saying you only pay HR tax if your total income is above £50,270. Now you are saying that you were paying HR tax on income just over £40,000.

Would you be willing to explain how this happened?

No they can't explain, because it didn't happen.

Well it does, but only for payroll purposes, when you look at the overall tax liability at the end of the year you aren't necessarily going to be liable for higher rate tax.

I know that and you know that but nobody is paying higher rate tax overall on £40k of income which is what the person said.

Dazed_and_C0nfused

BoGoF said:

Dazed_and_C0nfused said:

BoGoF said:

RG2015 said:

Ocelot said:

MrMoff said:

Ocelot said:

Your HR threshold is PTA + 37,770. Anything above is taxed at 40%. 

I have been paying HR tax for years due to tax allowance being lowered.

Ocelot, many thanks, This is the crux of my question.

Lets forget about Marriage Allowance as its the Tax Free Amount which is bothering me, and how it effects the LR and HR thresholds

When calculating a Tax Year HMRC has stated that I owed them £1000 from a previous year - Fair enough, it was from additional income which wasn't expected.

So they stated that to get this £1000 back from me they would reduce my Tax Fee Amount for the next year

So basically instead of my Tax Free Amount being £12,570, they reduced it by £5000 to £7,570 to allow for the £1000 ( £1000 x 5)

Now then this is where I have major issues.

As in effect this now my Tax burden for the year -----

My Income is £50,000

I pay no tax on the first £7,570 ( this is my adjusted Tax free Amount)

I pay 20% on the next £37,700 = £7,540

I then pay 40% on the remaining £4,800 = £1,920

Giving me a total tax bill of £9,460

However if I didn't owe them the £1000 from the previous year my tax would just have been the following

I pay no tax on the first £12,570

I pay 20% on the next 37,500 = £7,500

I have nothing more to pay as I have nothing left to tax as I did not exceed the lower threshold of £37,700

But you can see owing them £1000 actually cost me £1,960

Surely this cannot be right? they have gained £960 from nowhere!

Irrespective of the terminology as to whether it is your tax free amount lowered or not, I agree that in practice, your higher rate threshold has been lowered (as mine has for the last 7 years). At one point I was paying higher rate tax on any income just over 40,000.

I am struggling to understand this issue. I have a vested interest as my income is creeping up towards the HR threshold.

Some are saying you only pay HR tax if your total income is above £50,270. Now you are saying that you were paying HR tax on income just over £40,000.

Would you be willing to explain how this happened?

No they can't explain, because it didn't happen.

Well it does, but only for payroll purposes, when you look at the overall tax liability at the end of the year you aren't necessarily going to be liable for higher rate tax.

I know that and you know that but nobody is paying higher rate tax overall on £40k of income which is what the person said.

Very true!

RG2015

Dazed_and_C0nfused said:

RG2015 said:

Ocelot said:

MrMoff said:

Ocelot said:

Your HR threshold is PTA + 37,770. Anything above is taxed at 40%. 

I have been paying HR tax for years due to tax allowance being lowered.

Ocelot, many thanks, This is the crux of my question.

Lets forget about Marriage Allowance as its the Tax Free Amount which is bothering me, and how it effects the LR and HR thresholds

When calculating a Tax Year HMRC has stated that I owed them £1000 from a previous year - Fair enough, it was from additional income which wasn't expected.

So they stated that to get this £1000 back from me they would reduce my Tax Fee Amount for the next year

So basically instead of my Tax Free Amount being £12,570, they reduced it by £5000 to £7,570 to allow for the £1000 ( £1000 x 5)

Now then this is where I have major issues.

As in effect this now my Tax burden for the year -----

My Income is £50,000

I pay no tax on the first £7,570 ( this is my adjusted Tax free Amount)

I pay 20% on the next £37,700 = £7,540

I then pay 40% on the remaining £4,800 = £1,920

Giving me a total tax bill of £9,460

However if I didn't owe them the £1000 from the previous year my tax would just have been the following

I pay no tax on the first £12,570

I pay 20% on the next 37,500 = £7,500

I have nothing more to pay as I have nothing left to tax as I did not exceed the lower threshold of £37,700

But you can see owing them £1000 actually cost me £1,960

Surely this cannot be right? they have gained £960 from nowhere!

Irrespective of the terminology as to whether it is your tax free amount lowered or not, I agree that in practice, your higher rate threshold has been lowered (as mine has for the last 7 years). At one point I was paying higher rate tax on any income just over 40,000.

I am struggling to understand this issue. I have a vested interest as my income is creeping up towards the HR threshold.

Some are saying you only pay HR tax if your total income is above £50,270. Now you are saying that you were paying HR tax on income just over £40,000.

Would you be willing to explain how this happened?

With the exception of Scottish residents you do only pay higher rate tax over £50,270.

People are getting confused between what happens (provisionally) under PAYE and how your income tax liability is calculated.

Unless you have applied for Marriage Allowance or have adjusted net income of £100,002 or more you will have a Personal Allowance of £12,570.

Say you have expected earnings (or pension income) of £50,270 for 2024-25, owed £1,000 in underpaid tax and had £300 of untaxed interest.

Your tax code allowances would be 10,070 giving tax code 1007L.

By the end of the tax year your employer or pension payer would have deducted tax of £8,536.40 from the earnings (or pension) of £50,270.

Your tax liability for that year would be calculated like this,

Earnings/pension £50,270
Untaxed interest £300
Total taxable income £50,570

Less Personal Allowance £12,570 leaves £38,000 to be taxed,

£37,700 x 20% = £7,540
£300 x 0% = £0.00

Total tax liability = £7,540, pus unpaid tax from prior tax year(s) £1,000 = £8,540

Less tax deducted at source £8,536.40

Tax owing £3.60 (this would usually be ignored by HMRC).

The deduction in the tax code for underpaid tax is based on your expected earnings/pension income so if the actual amount was different to the estimate used in the tax code it can mean not all the tax is collected or you could have paid too much.

Should the highlighted bit be 7,570 and 757L?

Dazed_and_C0nfused

RG2015 said:

Dazed_and_C0nfused said:

RG2015 said:

Ocelot said:

MrMoff said:

Ocelot said:

Your HR threshold is PTA + 37,770. Anything above is taxed at 40%. 

I have been paying HR tax for years due to tax allowance being lowered.

Ocelot, many thanks, This is the crux of my question.

Lets forget about Marriage Allowance as its the Tax Free Amount which is bothering me, and how it effects the LR and HR thresholds

When calculating a Tax Year HMRC has stated that I owed them £1000 from a previous year - Fair enough, it was from additional income which wasn't expected.

So they stated that to get this £1000 back from me they would reduce my Tax Fee Amount for the next year

So basically instead of my Tax Free Amount being £12,570, they reduced it by £5000 to £7,570 to allow for the £1000 ( £1000 x 5)

Now then this is where I have major issues.

As in effect this now my Tax burden for the year -----

My Income is £50,000

I pay no tax on the first £7,570 ( this is my adjusted Tax free Amount)

I pay 20% on the next £37,700 = £7,540

I then pay 40% on the remaining £4,800 = £1,920

Giving me a total tax bill of £9,460

However if I didn't owe them the £1000 from the previous year my tax would just have been the following

I pay no tax on the first £12,570

I pay 20% on the next 37,500 = £7,500

I have nothing more to pay as I have nothing left to tax as I did not exceed the lower threshold of £37,700

But you can see owing them £1000 actually cost me £1,960

Surely this cannot be right? they have gained £960 from nowhere!

Irrespective of the terminology as to whether it is your tax free amount lowered or not, I agree that in practice, your higher rate threshold has been lowered (as mine has for the last 7 years). At one point I was paying higher rate tax on any income just over 40,000.

I am struggling to understand this issue. I have a vested interest as my income is creeping up towards the HR threshold.

Some are saying you only pay HR tax if your total income is above £50,270. Now you are saying that you were paying HR tax on income just over £40,000.

Would you be willing to explain how this happened?

With the exception of Scottish residents you do only pay higher rate tax over £50,270.

People are getting confused between what happens (provisionally) under PAYE and how your income tax liability is calculated.

Unless you have applied for Marriage Allowance or have adjusted net income of £100,002 or more you will have a Personal Allowance of £12,570.

Say you have expected earnings (or pension income) of £50,270 for 2024-25, owed £1,000 in underpaid tax and had £300 of untaxed interest.

Your tax code allowances would be 10,070 giving tax code 1007L.

By the end of the tax year your employer or pension payer would have deducted tax of £8,536.40 from the earnings (or pension) of £50,270.

Your tax liability for that year would be calculated like this,

Earnings/pension £50,270
Untaxed interest £300
Total taxable income £50,570

Less Personal Allowance £12,570 leaves £38,000 to be taxed,

£37,700 x 20% = £7,540
£300 x 0% = £0.00

Total tax liability = £7,540, pus unpaid tax from prior tax year(s) £1,000 = £8,540

Less tax deducted at source £8,536.40

Tax owing £3.60 (this would usually be ignored by HMRC).

The deduction in the tax code for underpaid tax is based on your expected earnings/pension income so if the actual amount was different to the estimate used in the tax code it can mean not all the tax is collected or you could have paid too much.

Should the highlighted bit be 7,570 and 757L?

No, that would be the code for a lower earner who was only expected to pay 20% tax.

That 5000 deduction would result in an extra £1,000 tax for a lower earner.

But in the example I used the earnings used all the basic rate band so anything above that would result in the employer deducting tax at 40%.  So the deduction needed to pay off the tax owed is only 2500 (2500 x 40% = 1000).

The tax code would be made up of Personal Allowance 12,570 less underpayment deduction 2500 = tax code allowances 10,070 = tax code 1007L.

If the tax code deduction has been 5,000 with earnings of £50,270 then £2,000 extra tax would have been deducted, which is £1,000 too much.