How does the higher tax bracket work?

Question

One of the Lads at work thinks the higher tax band starts after £30,500 I thought it was more myself, but if this is true if I carry on working like I am, I could easily hit that and more. So how does it work if I go over that do I just get taxed 40% and that’s it or is there away around it?, as I’m staff, I get no allowances for anything I don’t have a company car etc????

Answer 1

The first thing you should note is that you have an annual personal tax allowance of £5035. This means you do not pay tax on the first £5035 in any tax year. (april-april).

On the next £2151 you pay tax at a rate of 10%.

Between £2151 and £33300 (over the allowance) you pay 22% Tax.

Anything above this you pay 40% tax.

This means the higher tax band starts at £38,335 (£33,300+£5035). Any income above this will be subject to 40% income tax.

To complicate matters you pay national insurance at 11% for earnings between £97 and £645pw but this drops to 1% above £645pw.

If you are close to the higher tax band you may be able to bring yourself back below the band by paying more into your pension. There is no other legitimate way to avoid the 40% demand.

Also make sure your savings and investments are in tax efficient forms (such as ISAs). This will mean that you don't have to pay tax on your interest.

Note:-
This assumes you are below 65 (above 65 your personal allowance increases to £7280).

Income includes all income including investments (rental income, interest, share dividends etc.)

Be happy with earning a decent wage!

Answer 2

costly M: maximum of your income would be taxed yet at distinctive brackets, and distinctive %. IRS Pub 17 has the tax tables and it somewhat is accessible loose from the IRS. There are thinks you're able to do to shrink the impression regardless of the undeniable fact that it does require some making plans on your area. Ask for a consultation with a tax professional to get a plan to decrease your tax hit. this suggestion replaced into arranged in line with our know-how of the tax regulation in effect on the time it replaced into written because it applies to the info which you presented. click on my profile to verify extra. Errol Quinn Enrolled Agent.

Answer 3

First, you should take your annual earnings and deduct £5035 from it, as everyone can earn this amount tax free per year.
Then, with the remaining income, deduct £2150 and this is taxed at 10% (so £215). This is the same for everyone regardless of their income. Then with the remaining income, deduct £33,300 from it and this amount is taxed at 22%. Finally, the remaining amount is taxed at 40%. It can be really confusing, but any book on taxation in your local library schould help. You should note that if you earn interest on saving accounts or UK dividends that this will be taxed at their higher rate as well

Answer 4

Higher rate tax band starts at £33,3000. Anything you earn above this amount gets taxed at 40% - no way around it!

Answer 5

You are taxed on the first £35000 at 22% after your tax allowance, then at 40% on the amount above £35000.

i.e up to £5030 not taxed,
the amount up to £35000 taxed at 22%
(so 22% of £29970)
then 40% on the amount over £35000.

Hope this helps.

Answer 6

Here is a website i found for you my friend. Basically the tax bracket for higher earners starts at £33,300 at 40%. http://www.coutts.com/marketinfo/uktaxrates.asp

Answer 7

40% is the highest rate you'll pay and I don't know of a way around paying unless you employ a good accountant who may be able to mitigate your payments, depending on your circumstances. Good luck.

Answer 8

£33 000 plus you pay %40 tax

Answer 9

the 40% bracket starts at £35,000 works the same way as those on less than £35,000 except you pay 40% and not 22%. no way round it

Answer 10

PM is exactly right. I should know - I'm a tax inspector! :-P