Am I in the 40% tax bracket?

lipidicman wrote:

ctm, that much is true. I should have pointed that out. I was taking that for granted (not very helpful of me)

The above is great, now you need to know the details of the childcare vouchers, the other costs, what you can earn...etc Wasn't the original question to do with 'would you be better off'?

Do you mean from me? I do seem to have hi-jacked the OP question. Soz, but it was similar to what I wanted to ask which is why I didn't start a new thread.

It's not really to do with "will we be better off" more "is it worthwhile me returning to work" IYSWIM.

The childcare vouchers are tax and NI exempt for any amount he sacrifices upto £50 a week, but as I didn't know if he was a 22% or 40% tax payer I wasn't sure how much they were costing in real terms (sorry don't think I'm explaining this well).

How much would he be paying in NI? Do you know of an equation to work this out?

Thanks

Stonk wrote:

Don't worry - it was intended humorously. You'd be on wholly insecure ground with the Inland Revenue if you paid only basic rate tax on an income of £250K. To acheive this you would almost certainly have been pushing "tax avoidance" (legal) into "tax evasion" (illegal) territory, and they'd be investigating in a flash.

Directors' fees are taxable. You can only claim legitimate business expenses; if you claim £200K expenses a year you can be sure they will start asking difficult questions.

There are many little tweaks that can be done in the way of tax efficiency, but no amount of tweaking is going to bring £250K legally into the basic rate band!

Not every time Stonk. I totally agree that claiming business expenses at anything like those sorts of levels would be ridiculous and would invite investigation from the Inland Revenue very promptly.

It should also be noted that legitimate tax reduction at these levels is very specialised and would be dependent on the circumstances of the individual concerned.

However, working on the assumption that someone with income at that level, may have years when they have a high level of disposable income, then through judicious use of legitimate tax efficient investments and good tax planning it is sometimes possible to reduce the liability to higher rate tax on an income of that magnitude to negligible levels. This is not easy to achieve and the advice needed can be very expensive.

This is not to say that anyone doing this gets to just "keep the money", substantial amounts, much more than would have been paid in tax, will invariably be tied into investments, often high risk ones. However, it is the investor's choice and their risk. The government recognises this and from time to time offers tax breaks to those willing to take these types of risks.

The Inland Revenue have specialist teams working on complex tax cases of this type, oddly enough, so do firms of accountants. I post this response only because I would not like anyone reading this thread to think that those who manage to achieve a low tax to income ratio are necessarily breaking the law.

kinesin wrote:

Right another question on the 40% tax band

I currently earn just under the 32K, close to the 32.5k limt (which my reading is when the 40% band hits)

Read post #34 again.

Spendless wrote:

The childcare vouchers are tax and NI exempt for any amount he sacrifices upto £50 a week, but as I didn't know if he was a 22% or 40% tax payer I wasn't sure how much they were costing in real terms (sorry don't think I'm explaining this well).

How much would he be paying in NI? Do you know of an equation to work this out?

Don't know of any equation but as a (very) rough guide, for earnings up to £32.7k you pay 11% NI and over that, you pay 1% NI.

The actual table of figures is here (it's a PDF so give it a little time to load)

So as another (very) rough guide on the childcare vouchers, if you are paying 40% tax, then you are probably paying 1% NI, so your saving is 41%.

If you're in the 22% bracket (obviously there is some overlap though I guess?) then you're probably saving 33% (22% tax and 11% NI).



APOLOGIES to everyone for my crude figures and layman's way of putting it, I'm sure that some kind person will correct me if I'm not correct