Backpay / Tax Help!

Got2change

I probably can't offer anything worthwhile being as you are obviously clever enough to be earning loads - but I have questions:
How much of your £38,000 is the London weighting?
Is this taxable?
If so, then what has been the 40% threshold in the years since your promotion (and therefore the date from which you were entitled to your increase)? I see from HMRC website that the 40% threshold for '08-'09 is £34,600, so you will definitely be into the higher range from now on I suppose....
What I am thinking is that it sort of balances out maybe? If the increase would have pushed you into the higher range in previous years then all that is happening is that you will be catching up in the paying of tax so to speak?
(Or am I being hopelessly blonde)
I don't want to rain on your parade and really am just poking my nose in out of interest - but sometimes the stress of these things proves not to be worth it if there is a way to reconcile it in your head.

thumpa28

Got2change

Many thanks for your comments and can I say, I agree with you 100%. The effort it has taken to get to this point is completely draining, but conversely because it has taken so much effort and arguing to drag them kicking and screaming to here, I am unwilling to let them mess me around at the last. Had I known what I was getting myself into though...

My London weighting is around £5000, it is taxable I thought the same regarding the 40% threshold at £34,600 but I dont think that this includes the personal allowance which is around £5,500? Ive got to say its all a blur at this point, perhaps someone who knows about these things can advise whether that is meant to count?

Got2change

You earn £38,000 gross? (Including London weighting)
Here's my take on it..........
Your backdated increase totals £5000 - for three years '05-'06,'06-'07
& '07-'08 (using full tax years for this) - therefore £1666.66 per year = (assuming you have earnt £38,000 each year) gross pay for each year would have been £39,700 roughly. Now it depends what the threshold for 40% tax was in those three years - I doubt it has come down; which means by this calculation that you should anyway have been paying higher rate tax........
The rate of tax paid is calculated on gross income less personal allowance (for this year £5430), therefore £34,600 - £5430 = £29170 x % rate of tax = Tax paid.
You are right in one sense that this additional £5000 will mean you are at higher rate but I think you would be anyway - and have been? (unless I'm missing something) so in a way - as I said before - you are just catching up. The horrid thing is that as it is paid in one sum, you see so much less but it still would happen if the payments were pro-rata'ed through the rest of this year.
Am happy to be corrected if I'm wrong; I'm blonde, unemployed and bankrupt - what do I know.......

thumpa28

Got2change

Is that is how it is worked out? I think the personal allowance is considered first, then after that is deducted is when you start paying tax... http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015566 Strangely I would be happier if it was done your way as I would have nothing to moan about! Ill double check but thank you for your help, hope your problems sort themselves out!

Got2change

thumpa28 wrote: »

Got2change

Is that is how it is worked out? I think the personal allowance is considered first, then after that is deducted is when you start paying tax...[/quote]

Yes - that's what I meant.
i.e. £20,000 less personal allowance 5430 = £14570 taxable pay.
But the salary for purposes of calculation is £20K.

So if you were earning £38,000, your taxable pay was £32,570 but you would still be in the 40% bracket because of gross salary being over £34,600.
I maybe misunderstood your original question. (Like I said, blonde.....)
Anyway, all the best; hope it gets sorted.

thumpa28

Well youve got a much better handle on it than. me. im just staggering around here I think im just going to buy extra years for my pension after all this!

Savvy_Sue

thumpa28 wrote: »

I think im just going to buy extra years for my pension after all this!

There would of course be a tax advantage in doing just that! At least I think so.

Plus, if you Gift Aid any money to charity you can claim some tax back.

I think that if you're not in desperate NEED of the lump sum there would be ways of making sure the tax man doesn't keep more of it than is strictly necessary! Although you may have to pay the tax up front and claim it back later.