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  • FIRST POST
    • ldavies 7
    • By ldavies 7 12th Mar 18, 9:50 PM
    • 33Posts
    • 2Thanks
    ldavies 7
    How is income tax calculated
    • #1
    • 12th Mar 18, 9:50 PM
    How is income tax calculated 12th Mar 18 at 9:50 PM
    Hi

    I am just after some clarification as to how income tax is calculated and deducted.

    I have searched the forum for an answer but could not find what I was looking for, so apologies if this question has been asked before.

    I have checked my payslip for March which is saying my gross taxable pay is £39000, so I presume that if I add my personal allowance onto this then this is what I have earned so far this tax year, thus exceeding the bracket for the higher rate tax.

    Now a we are in the final month of this tax year I presume that my March pay will be subject to 40% income tax less my personal tax free allowance and and my pension deductions.

    Is this the correct way to calculate this? And will my earnings from April reset to 0 for the next tax year?

    Thanks
Page 1
    • 00ec25
    • By 00ec25 12th Mar 18, 9:59 PM
    • 6,519 Posts
    • 6,079 Thanks
    00ec25
    • #2
    • 12th Mar 18, 9:59 PM
    • #2
    • 12th Mar 18, 9:59 PM
    lots of websites explain how tax is calculated as cumulative monthly amounts. You don't suddenly cross the higher rate threshold in a single month

    40% tax = 11,500 + 33,500 = 45,000
    in mth 1 earn more than 45/12 = 3,750 and you'll pay a bit at 40% that month
    in mth 2 if mth1 + nmth 2 = > 7,500 and you'll pay a bit at 40% that month, if on the other hand you were over 3750 in mths 1 but under 7500 in mths 2 you'll get some tax refunded in your pay, hence Pay As You Earn
    by mth 3 if your total cumulative earnings for the tax year are > 11,250 you'll still be paying a bit at 40% (but only on the amount over 11,250)

    read the links rather than us having to write it all out again
    https://www.citizensadvice.org.uk/debt-and-money/tax/income-tax-how-much-should-you-pay/income-tax/

    https://www.litrg.org.uk/tax-guides/tax-basics/how-do-i-work-out-my-tax

    http://iknowtax.com
    Last edited by 00ec25; 12-03-2018 at 10:01 PM.
    • Dazed and confused
    • By Dazed and confused 12th Mar 18, 9:59 PM
    • 2,652 Posts
    • 1,272 Thanks
    Dazed and confused
    • #3
    • 12th Mar 18, 9:59 PM
    • #3
    • 12th Mar 18, 9:59 PM
    During the year for a specific employment you deduct your tax code allowances, for example code 825L = £8250, and then calculate the tax.

    At the end of the year you need to add up your total income and then deduct your Personal Allowance* before calculating the tax.
    *assuming your income is less than £100k
    • ldavies 7
    • By ldavies 7 12th Mar 18, 10:28 PM
    • 33 Posts
    • 2 Thanks
    ldavies 7
    • #4
    • 12th Mar 18, 10:28 PM
    • #4
    • 12th Mar 18, 10:28 PM
    Those links have helped a great deal. Thanks to you both
    • agrinnall
    • By agrinnall 13th Mar 18, 9:15 AM
    • 20,345 Posts
    • 16,122 Thanks
    agrinnall
    • #5
    • 13th Mar 18, 9:15 AM
    • #5
    • 13th Mar 18, 9:15 AM
    You don't add your personal allowance onto the amount shown on your payslip. If the total for the year to March (which presumably is for the whole tax year) is £39,000 then unless you have a very non-standard tax code you are a basic rate taxpayer.
    • RG2015
    • By RG2015 13th Mar 18, 12:04 PM
    • 1,275 Posts
    • 753 Thanks
    RG2015
    • #6
    • 13th Mar 18, 12:04 PM
    • #6
    • 13th Mar 18, 12:04 PM
    I have checked my payslip for March which is saying my gross taxable pay is £39000, so I presume that if I add my personal allowance onto this then this is what I have earned so far this tax year, thus exceeding the bracket for the higher rate tax.

    Now a we are in the final month of this tax year I presume that my March pay will be subject to 40% income tax less my personal tax free allowance and and my pension deductions.
    Originally posted by ldavies 7
    You don't add your personal allowance onto the amount shown on your payslip. If the total for the year to March (which presumably is for the whole tax year) is £39,000 then unless you have a very non-standard tax code you are a basic rate taxpayer.
    Originally posted by agrinnall
    Hi ldavies 7,

    You say above that you have checked your payslip for March. As your post is dated 12th March, does this cover the whole of March? It seems a bit early to have your payslip made up to 31st March.

    If there is another month to add on to the £39,000 you may be close to having a higher rate tax liability. You will be able to check for yourself on the tax calculator that 00ec25 has given you.
    Last edited by RG2015; 13-03-2018 at 12:15 PM.
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