Higher rate tax

MEJ_2

Hello, I have searched but can't find an answer so help please with my basic lack of knowledge

If I earn £42,500 and pay 6% into a pension am I a higher rate tax payer?

ie, do I deduct my personal allowance + pension contributions and work out tax on the rest OR is it just the prsonal allowance that is deducted

I have been puzzling and have worked it out both ways. Which, if any, is correct please?

1)
£42,500 - £5,435 (personal allowance) = £37,065
£37,065 - £34,600 (20% band) = £2,465 above that to be taxed @ 40%

2)
£42,500 - £5435 - £2,550 (6% pension) = £34,515
£34,515 = all taxed at 20%

I know the 10% allowance goes in April but I think these figures are for this year - couldn't find 2008-9 but the question remains the same.

Thank you

CLAPTON

for this tax year is goes like this

gross income 42,500
less pension 2550
giving taxable pay of 39,950

tax free allowance 5225
giving 34,725
10% tax band of 2230
leaving 32,495
of which 32370 is taxed at 22%
leaving 125 taxed at 40%

so tax payable is
223 plus
7121.40 plus
50

i.e. 7394.40

MEJ_2

Thank you - I've saved that as you set it out so clearly.

MEJ_2

Sorry, me again,

does National Insurance come off before or after tax? When in your calculation do I take it off?

Thank you

bristol_pilot

You don't deduct NI at all I'm afraid - that's why its classed by many as a 'tax on jobs'. You pay it if your income comes from working but not if your income comes from investments etc.

If you have any taxable unearned income (e.g. building society interest) you have to add that on to the income from your job.

CLAPTON

The NI deduction depends upon whether you are contracted out of the second state scheme... assuming you are then you pay
9.4% of your gross money between 5225 and 34840 and 1% over that


so in your case you pay

gross 42500
less 5225 NI free
leaving 37,275

of which 34,840 you pay at 9.4% = 3,274
leaving 2,434 at 1% = 24.34

so NI is £3,299.31 approx

MEJ_2

Thank you
So I will pay £50 tax at 40% which will be collected by my employer by PAYE. Most savings are in other halfs name. I got £420 interest on savings so I'm guessing I should have filled in a tax return for this?
Do I ring them or do they send me a form?

(Sorry for so many questions. My salary went up by £9000 for 3 years fixed time which is across full tax year and two half years so I'm new to this.)

jem16

Best bet is to ring HMRC and declare the interest on your savings. They may just take it into account by adjusting your tax code.

Mikeyorks

MEJ wrote: »

I got £420 interest on savings so I'm guessing I should have filled in a tax return for this?

Not necessarily .. if your affairs are otherwise 'simple'. The days are past where your entry into the 40% band brought an automatic invite to the SA club.

As Jem says, contact HMRC. They'll probably do it via P810 procedure (a simple single sheet) and code out any resultant underpayment from your Code ... thereby keeping it entirely within PAYE.

Bill_R_2

CLAPTON wrote: »

for this tax year is goes like this

gross income 42,500
less pension 2550
giving taxable pay of 39,950

tax free allowance 5225
giving 34,725
10% tax band of 2230
leaving 32,495
of which 32370 is taxed at 22%
leaving 125 taxed at 40%

so tax payable is
223 plus
7121.40 plus
50

i.e. 7394.40

Hi,

I tried asking this in another post, no replies :-(

If you had

gross income 50,000
tax free allowance 5,225
and you paid (50,000-5225) = 44,775 into a pension

what would taxable pay be ?

Cheers

Bill

CLAPTON

I dont really know a lot about pensions but my understanding s that subject to certain lifetime limits you can pay up to your earned income into a pension fund

so if you paid that then you would pay no tax .. the actual mechanisms need to be considered however