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  • FIRST POST
    • Marty_P
    • By Marty_P 7th Mar 18, 11:55 AM
    • 5Posts
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    Marty_P
    40% Income Tax & Reduced Tax-Free Allowance
    • #1
    • 7th Mar 18, 11:55 AM
    40% Income Tax & Reduced Tax-Free Allowance 7th Mar 18 at 11:55 AM
    I have seen it generally stated that 40% income tax is paid on income in excess of 45,000 for tax year 2017/18. With a standard tax free allowance of 11,500, it is understood that this leaves 33,500 to be taxed at 20%.

    Is 33,500 the maximum amount to be taxed at 20%, i.e. the most a person can be taxed is 6,700 at 20%?

    I ask because my tax code has changed, reducing my tax-free allowance, and I want to understand what will be taxed at what rate.

    Example:

    With a salary of 45,000 and an allowance of 11,500, 6,700 will be taken as income tax:
    45,000 less 11,500 is 33,500 @ 20% = 6,700.

    With the same salary of 45,000 and a reduced tax allowance of 10,700 (800 less than standard); is the upper limit of 45,000 reduced by 800 to 44,200, therefore suggesting that anything in excess of 44,200 will be taxed at 40% (33,500 @ 20% is 6,700, plus 800 @ 40% is 320 = 7,020 taxed)?

    Or is 45,000 still the trigger for taxation at 40%, and therefore, anything between 10,700 and 45,000 is taxed at 20% (45,000 less 10,700 is 34,300 @ 20% = 6,860 taxed)?

    I'm sure there's a better way to ask the question. My head hurts now
    Last edited by Marty_P; 08-03-2018 at 12:31 PM. Reason: Title change
Page 1
    • xylophone
    • By xylophone 7th Mar 18, 2:23 PM
    • 25,371 Posts
    • 14,967 Thanks
    xylophone
    • #2
    • 7th Mar 18, 2:23 PM
    • #2
    • 7th Mar 18, 2:23 PM
    Try https://listentotaxman.com/

    Why has your tax code been reduced?

    Have you looked at your personal tax account?

    https://www.gov.uk/personal-tax-account
    • Linton
    • By Linton 7th Mar 18, 3:33 PM
    • 9,384 Posts
    • 9,519 Thanks
    Linton
    • #3
    • 7th Mar 18, 3:33 PM
    • #3
    • 7th Mar 18, 3:33 PM
    The trigger is 33500. Your second paragraph is correct.
    • lindabea
    • By lindabea 7th Mar 18, 3:41 PM
    • 970 Posts
    • 136 Thanks
    lindabea
    • #4
    • 7th Mar 18, 3:41 PM
    • #4
    • 7th Mar 18, 3:41 PM

    Or is 45,000 still the trigger for taxation at 40%, and therefore, anything between 10,700 and 45,000 is taxed at 20% (45,000 less 10,700 is 34,300 @ 20% = 6,860 taxed)?

    I'm sure there's a better way to ask the question. My head hurts now
    Originally posted by Marty_P
    I think you're over complicating the whole issue. The 45K is still the limit on which you pay higher rate tax (ie40%) By lowering your personal allowance it means that more of your taxable income will be subject to basic rate tax - upto the 45K limit. So in your example, by lowering your PTA by 800 you will pay tax on the 800@20% which is 160 as in your example above.
    Before doing something... do nothing
    • HappyHarry
    • By HappyHarry 7th Mar 18, 4:15 PM
    • 603 Posts
    • 879 Thanks
    HappyHarry
    • #5
    • 7th Mar 18, 4:15 PM
    • #5
    • 7th Mar 18, 4:15 PM
    If your PA is 11,500, then:

    0 - 11,500 @ 0% = 0
    11,500 - 45,000 @ 20% = 6,700

    Total tax to pay = 6,700
    ___________________________

    If your PA is 10,700, then:

    0 - 10,700 @ 0% = 0
    10,700 - 44,200 @ 20% = 6,700
    44,200 - 45,000 @ 40% = 320

    Total tax to pay = 7,020
    ____________________________

    The basic rate tax band of 33,500 can change, i.e. if you make charitable donations or pension contributions then it can be extended.
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
    • ChuckMountain
    • By ChuckMountain 7th Mar 18, 4:23 PM
    • 148 Posts
    • 47 Thanks
    ChuckMountain
    • #6
    • 7th Mar 18, 4:23 PM
    • #6
    • 7th Mar 18, 4:23 PM
    I think you're over complicating the whole issue. The 45K is still the limit on which you pay higher rate tax (ie40%) By lowering your personal allowance it means that more of your taxable income will be subject to basic rate tax - upto the 45K limit. So in your example, by lowering your PTA by 800 you will pay tax on the 800@20% which is 160 as in your example above.
    Originally posted by lindabea
    Sorry but you are wrong, OP is now in higher rate tax bracket

    If your personal allowance is reduced then it slides the allowed income down too.

    If the OP has had a PA reduced by 800 then assuming no other adjustments or income then his tax code would have changed from 1150L to 1070L to reflect the change.

    As the 20% band is 33,500 and generally does not change* then the OP is now earning 800 in the 40% bracket so is taxed 320 on this.

    OP total tax bill for the year will be 7,020.

    If his tax code remained at 1150L his bill would be 6,700.

    Plug the same numbers into listentotaxman.com as xylophone originally said.

    * could be adjusted for charitable giving etc but this normally on SA

    Happy Harry beat me to it
    • Dazed and confused
    • By Dazed and confused 7th Mar 18, 5:14 PM
    • 2,558 Posts
    • 1,228 Thanks
    Dazed and confused
    • #7
    • 7th Mar 18, 5:14 PM
    • #7
    • 7th Mar 18, 5:14 PM
    Given that the only reason the amount of the Personal Allowance can be reduced is adjusted net income in excess of 100,000 then I think it is more likely the op has had his tax code reduced, not their Personal Allowance.

    And as the change to the tax code could be for a multitude of reasons I don't think it's possible to say what the overall impact would.

    If the change was to include an underpayment then the op still has the full Personal Allowance and basic rate band available when the actual tax liability is caclulated at the year end.
    • polymaff
    • By polymaff 7th Mar 18, 7:06 PM
    • 2,082 Posts
    • 907 Thanks
    polymaff
    • #8
    • 7th Mar 18, 7:06 PM
    • #8
    • 7th Mar 18, 7:06 PM
    ... I ask because my tax code has changed, reducing my personal allowance
    Originally posted by Marty_P
    @D&C: Another day - but the same issue. An OP's confusion about Personal Allowances and PAYE Tax Coding.

    Marty_P, understand that your PA influences your PAYE Tax Code - NOT vice-versa
    Last edited by polymaff; 07-03-2018 at 7:10 PM.
    • ChuckMountain
    • By ChuckMountain 7th Mar 18, 8:36 PM
    • 148 Posts
    • 47 Thanks
    ChuckMountain
    • #9
    • 7th Mar 18, 8:36 PM
    • #9
    • 7th Mar 18, 8:36 PM
    Yes sorry I was writing about personal allowance on another thread.

    Without knowing the full details its hard to say what has reduced the tax and whether that was assumed it would recover at 20% or 40%, it could be under payment of tax, medical insurance etc. etc.

    If the Tax code has changed to 1070L HappyHarry's and mine will be what tax payroll deducts. It might not be what's owed in tax though.
    • Marty_P
    • By Marty_P 8th Mar 18, 12:41 PM
    • 5 Posts
    • 0 Thanks
    Marty_P
    Thanks All,

    listentotaxman.com enabled me to do the simple check and then the 'check in more detail' section of tax.service.gov.uk/check-income-tax/paye-income-tax-estimate clarified further.

    Special thanks to HappyHarry and ChuckMountain.

    As for polymaff... I really don't appreciate being patronised. If your intention is not to be helpful, but to belittle others, you can troll-off!

    Have a great day everyone!
    • polymaff
    • By polymaff 8th Mar 18, 2:49 PM
    • 2,082 Posts
    • 907 Thanks
    polymaff
    As for polymaff... I really don't appreciate being patronised. If your intention is not to be helpful, but to belittle others, you can troll-off!
    Originally posted by Marty_P
    I'd be genuinely interested to know how you came to that conclusion.
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