Just Became A Higher Rate Tax Payer - What Do I Need To Do?

mr_fishbulb

Hope someone can help, or suggest some links.

Due to a bonus and overtime, I've crossed over the £34,600 limit and am now into higher rate tax payer territory.

This is going to affect things like the amount of tax I have been paying on my bank interest, but also my contributions and the tax relief on my pension.

Does anybody have a checklist of things that I need to do, now that I'm on the higher rate?

Many thanks in advance.

jem16

First of all make sure you are really a higher rate taxpayer.

Remember that the £34,600 is taxable income. So first of all take your whole income which includes earned income, savings interest and any dividend payments you receive.

Then take off your personal allowance - if your have a tax code of 522L then take off £5225. If your pension contributions are taken off your gross salary then you can take off that amount too.

If you are left with taxable income over £34,600 then contact HMRC and explain.

In reality most people are able to earn £39,825 before paying higher rate tax.

mr_fishbulb

Thanks for the replies, but it's over £40,000 so far and I've still got another pay packet this financial year.

Also my tax free allowance is slightly under £5000 as I get health insurance as a taxable benefit - which is but

Can I take off my pension contributions too?

mr_fishbulb

I pay 5% into a pension (company contributes a further 10) but that's on my basic, not including bonus and overtime.

I'll add the figures up this evening but it could mean I'll need to put most of next month's pay into pension to avoid going into the higher rate (can't afford to do that).

If I do end up being in the higher rate, I guess my original question still stands - what do I need to do?

Cheers

CannyJock

mr_fishbulb wrote: »

I pay 5% into a pension (company contributes a further 10) but that's on my basic, not including bonus and overtime.

I'll add the figures up this evening but it could mean I'll need to put most of next month's pay into pension to avoid going into the higher rate (can't afford to do that).

If I do end up being in the higher rate, I guess my original question still stands - what do I need to do?

Cheers

Contact your local tax office, might mean doing a self-assessment form with your P60 details, details of personal pension contributions gross up, tax statements on interest received.

I did the lump sum payment into a personal pension to dodge the 40% bullet last year.

Is it the payment of additional tax on savings interest that you're wondering about and if you need to volunteer this or how they would find out if you don't?

mr_fishbulb

CannyJock wrote: »

Is it the payment of additional tax on savings interest that you're wondering about and if you need to volunteer this or how they would find out if you don't?

That, and the tax relief on contributions I have been making on my pension this year.

The thing which makes it difficult is I don't know how much I've earnt on top of my base rate until my pay slip comes in because of the overtime on it.

mr_fishbulb

CannyJock wrote: »

I did the lump sum payment into a personal pension to dodge the 40% bullet last year.

Can you do this after you have recieved the money, or will I need to tell my payroll beofre I get the pay?

jem16

mr_fishbulb wrote: »

Can you do this after you have recieved the money, or will I need to tell my payroll beofre I get the pay?

You need to do it on or before 5th April to count for this tax year.

Broke_Student

Hi guys. Not a direct response to the thread but a question about a linked issue:

What happens when it is the interest on your savings which brings you just over the next tax banding?
i.e. Earning below 40k but get savings interest to bring you above 40k but if you must now pay 40% tax on all savings interest then it brings you back below the 40k threshold.

chrisbur

Broke_Student wrote: »

Hi guys. Not a direct response to the thread but a question about a linked issue:

What happens when it is the interest on your savings which brings you just over the next tax banding?
i.e. Earning below 40k but get savings interest to bring you above 40k but if you must now pay 40% tax on all savings interest then it brings you back below the 40k threshold.

Interest due on savings is calculated on the gross interest you receive, that figure does not alter as a result of paying tax. So if you were £1000 short of the 40% band on your earnings and received £2000 in interest then you would owe tax at 40% on the £1000 less the 20% already taken.

Broke_Student

chrisbur wrote: »

owe tax at 40% on the £1000 less the 20% already taken.

Thanks.
To clarify, you mean that 20% is taken at source on both savings + salary and then you self submit another 20% on anything in excess of £40k?