Can I confirm something?

Ocelot

Hi. I'm having a discussion on the savings forum about tax thresholds.

I say that if your personal allowance is lowered, you pay higher rate tax on a lower amount than if your allowance is standard.

ie your personal allowance has been lowered to £8000 due to exceeding your PSA. Therefore you pay higher rate tax on any income above 8000 + 37,700 = £45,700 per year.

Everyone else seems to think that you pay 20% up to 50,270, irrespective of your personal allowance.

I would be delighted if the latter was correct, but am pretty sure I'm correct, and that this is blindingly obvious.

Could someone confirm?

Thanks.

BoGoF

As has been said in your other thread, you are wrong, a reduction in your tax code does not mean you are losing some of your basic rate band when it comes to reviewing your tax affairs at year end.

BoGoF

Can you be specific about your 23/24 tax code and your end of year pay and tax details so we can demonstrate how it works.

amanda1024

Ocelot said:

Hi. I'm having a discussion on the savings forum about tax thresholds.

I say that if your personal allowance is lowered, you pay higher rate tax on a lower amount than if your allowance is standard.

ie your personal allowance has been lowered to £8000 due to exceeding your PSA. Therefore you pay higher rate tax on any income above 8000 + 37,700 = £45,700 per year.

Everyone else seems to think that you pay 20% up to 50,270, irrespective of your personal allowance.

I would be delighted if the latter was correct, but am pretty sure I'm correct, and that this is blindingly obvious.

Could someone confirm?

Thanks.

I think the point is that exceeding your PSA has only impacted your *tax code*, not your *personal allowance*.

molerat

Having higher rate tax deducted from your income and being a higher rate tax payer are not the same thing.  Your tax code is not your personal allowance, it is simply a means to attempt to deduct the correct amount of tax for the year.

Dazed_and_C0nfused

Ocelot said:

Hi. I'm having a discussion on the savings forum about tax thresholds.

I say that if your personal allowance is lowered, you pay higher rate tax on a lower amount than if your allowance is standard.

ie your personal allowance has been lowered to £8000 due to exceeding your PSA. Therefore you pay higher rate tax on any income above 8000 + 37,700 = £45,700 per year.

Everyone else seems to think that you pay 20% up to 50,270, irrespective of your personal allowance.

I would be delighted if the latter was correct, but am pretty sure I'm correct, and that this is blindingly obvious.

Could someone confirm?

Thanks.

Your Personal Allowance is only reduced for one of two reasons,

1.  You have applied for Marriage Allowance
2.  Your adjusted net income is over £100k

BoGoF

My final attempt at trying to explain. Let's go back to your tax code of £8000 after you have exceeded your PSA by £4,570 (your PSA being £500 if HR). Take earnings of £55,000 and a tax code of 800L for 23/24 and you would have paid tax of £11,256.

Now at year end HMRC review this and say;

Earnings of £55,000 - PA £12,570 = £42,430- £37,700 @ 20% = £7540 and £4730 @ 40% = £1892. Total tax on earnings £9,432.

Tax on interest £4,570 @ 40% = £1828

Total tax due £11,260 which differs slightly (due to rounding) to that collected via PAYE.

Hopefully that demonstrates that the HR threshold remains unchanged regardless of your tax code.