higher rate tax?

in_my_wellies

I'm sorry if this is probably a simple question.

What is the actual starting point for higher rate tax? I understand I have £4,745 personal allowance which is not taxed. Then there are 10%, 22% and 40% bands. Are these added up so I only pay 40% on the last bit eg.

0 - £4745 = no tax
£4745 - £6745 = 10% tax
£6745 - £38145 = 22% tax
£38145 - and up + 40% tax

Have I got this right? I'm a married woman and don't have any other allowances.

My building society savings are taxed automatically, I suppose at basic rate. Do I have to tell them individually if I now pay higher rate tax?

Do I have to cmplete a tax form?

Should it tell me my tax rate on my pay slip?

Sorry to sound simple. My salary increased by £12,000 this year. This is not the sort of problem I'm used to!

YorkshireBoy

in_my_wellies wrote:

0 - £4745 = no tax
£4745 - £6745 = 10% tax
£6745 - £38145 = 22% tax
£38145 - and up + 40% tax

Have I got this right?

No, the current personal allowance is £4,895

Taxable income is gross pay less personal allowances.

Tax rates 2005/06...
* 10% - on the first £2,090 of taxable income
* 22% - on the next £30,310 of taxable income (ie 2,090 to 32,400)
* 40% - on any taxable income over £32,400 40% (the higher rate)

So, to fall into 40% tax, you'd need a gross salary in excess of £32,400 + £4,895 = £37,295*

You only pay 40% tax on that part of taxable income over £32,400 per annum.

* Company pension contributions may allow you to earn more (I think?).


I'm not a higher rate tax payer, so if the following is incorrect, I'm sure one of the experts will quickly correct it!

in_my_wellies wrote:

My building society savings are taxed automatically, I suppose at basic rate. Do I have to tell them individually if I now pay higher rate tax?

Do I have to cmplete a tax form?

I believe you tell HMRC about your savings via your tax return form. HMRC will then adjust your tax code for the following year. You do not have to contact your various savings institutions.

in_my_wellies wrote:

Should it tell me my tax rate on my pay slip?

No, it only shows your tax code, for example, 489L, which is derived from your tax free amount for the year.

in_my_wellies wrote:

My salary increased by £12,000 this year. This is not the sort of problem I'm used to!

I'd be happy to have your problem!

in_my_wellies

I see, I looked at last years table. Thank you. So I pay 40% on over £37,295.

Is National Insurance like an extra allowance then which make the 40% kick in at a higher level?

(I'm thinking the extra 3 hours a day and less holidays is not worth it.)

Thank you

in_my_wellies

My OH has retired and I have gone full time so our gross income looks about the same (only £230 less per year) but we now realise it is the tax that is making a difference to net income.

I think we will be transfering savings into his name to use his personal allowance, until he collects his pension in 4 years time at least. (Watch as he runs off with other woman in all this spare time he now has!!)

Robert_Sterling_3

Building Society Accounts are taxed at 20%
You are not required to pay the 2p which would make the total 22%.

If you pay tax at 40% on part of your income then then you do have to pay a furthe 20p interesrt per pound on your building society interest.

You do not have to tell the Building Society that you pay tax at 40%.

The Inland Revenue will spot this on your self assessment form and will act accortdingly.

YorkshireBoy

in_my_wellies wrote:

I see, I looked at last years table. Thank you. So I pay 40% on over £37,295.

No, you pay 40% tax on any taxable income over £32,400 per year if you have the standard personal allowance of £4,895.

A booklet, Understanding your Tax Code normally accompanies your annual notice of coding, which includes various worked examples. If you can't lay your hands on it at the moment, then the following link takes you to the online copy. A word of warning though, some of the allowances are for 2004/05, but the principles are the same...

http://www.hmrc.gov.uk/leaflets/p3.htm

Aark

National Insurance Contributions are a tax, not an allowance. The good news is that the rate of NICs goes down from 11% to 1% on earnings over £32,760 (rates of NICs are lower if in an employer's contracted-out pension scheme).

This means that for higher rate taxpayers, their marginal rate of total taxes on earnings is 41% (40% + 1%) rather than the 33% (22% + 11%) that lower earners suffer.

Do I have to cmplete a tax form?

If you receive a Self Assessment Tax Return, then you must complete it and it will include details of savings income.

If not, HMRC may pick up on the fact that you are now a 40% taxpayer and ask for details of any other income after the end of the tax year.

If you are not contacted by HMRC and you have tax payable for 2005/06 because you are now a higher rate taxpayer and have only suffered tax of 20% at source on interest, you must inform HMRC of this fact by 5 October 2006.

isasmurf

in_my_wellies wrote:

I see, I looked at last years table. Thank you. So I pay 40% on over £37,295.

YorkshireBoy wrote:

No, you pay 40% tax on any taxable income over £32,400 per year if you have the standard personal allowance of £4,895.

A booklet, Understanding your Tax Code normally accompanies your annual notice of coding, which includes various worked examples. If you can't lay your hands on it at the moment, then the following link takes you to the online copy. A word of warning though, some of the allowances are for 2004/05, but the principles are the same...

http://www.hmrc.gov.uk/leaflets/p3.htm

Sorry YorkshireBoy, inmywellies is correct. Total income over £37,295 will be taxed at 40%. Although you pay no tax on the first £4,859 it is still classed as taxable income as it counts towards your tax free allowance.

Not everybody gets a annual notice of coding - I for example have only ever had one when I started work and haven't had one since.

in_my_wellies wrote:

Do I have to cmplete a tax form?

It used to be very simple. If you were a higher rate taxpayer you had to fill in a tax form. Now in an effort to supposedly simplify things it is now slightly confusing. You will either have to fill in a full Self Assessment return, or a Short Tax Return, or a simple form which will adjust your tax code to ensure you pay the extra due on your savings through your wages. The bottom line is you must inform HMRC that you need to pay higher rate tax on your savings, and it is usually safer if you take the initative and contact them.

YorkshireBoy

isasmurf wrote:

Sorry YorkshireBoy, inmywellies is correct. Total income over £37,295 will be taxed at 40%. Although you pay no tax on the first £4,859 it is still classed as taxable income as it counts towards your tax free allowance.

Are you sure? Because I've taken my information straight from HMRC's "Understanding Your Tax Code" booklet.

No, the current personal allowance is £4,895

Taxable income is gross pay less personal allowances.

Tax rates 2005/06...
* 10% - on the first £2,090 of taxable income
* 22% - on the next £30,310 of taxable income (ie 2,090 to 32,400)
* 40% - on any taxable income over £32,400 40% (the higher rate)

So, to fall into 40% tax, you'd need a gross salary in excess of £32,400 + £4,895 = £37,295*

You only pay 40% tax on that part of taxable income over £32,400 per annum.

Specifically, and so I don't get it wrong again, which bit of the above is incorrect?

YorkshireBoy

isasmurf wrote:

Sorry YorkshireBoy, inmywellies is correct. Total income over £37,295 will be taxed at 40%. Although you pay no tax on the first £4,859 it is still classed as taxable income as it counts towards your tax free allowance.

Sorry, isasmurf, I've just realised I think we're both saying the same thing...

You're saying "Total income over £37,295 will be taxed at 40%"

and I'm saying "Taxable income over £32,400 will be taxed at 40%"

It's the same thing isn't it?

reddevilled

isasmurf wrote:

Sorry YorkshireBoy, inmywellies is correct. Total income over £37,295 will be taxed at 40%. Although you pay no tax on the first £4,859 it is still classed as taxable income as it counts towards your tax free allowance.

If we're getting into the technicalities of what it's called it is actually called your STI (statutory total income) not taxable income. Your taxable income income is your statutory income less personal allowances etc.

Sorry to be pedantic