Higher tax rate query


J

Jeff

Hi - I'm getting a bit confused here (not hard!)trying to find out at
what salary point you start paying tax at 40%.

Looking at the HMRC site (and a few others), it says higher rate applies
after £33,300

Looking at the Prudential site, it says £40,485 (ie £5,035 personal
allowance + £7,185 at 10% + next £33,300 at 22% = £40,485)

I'm coming up to £33,000 soon and not sure whether to re-arrange my savings.

Can anyone give me a simple answer please?

Thanks,

Jeff
 
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R

Ronald Raygun

Jeff said:
Hi - I'm getting a bit confused here (not hard!)trying to find out at
what salary point you start paying tax at 40%.

Looking at the HMRC site (and a few others), it says higher rate applies
after £33,300

Looking at the Prudential site, it says £40,485 (ie £5,035 personal
allowance + £7,185 at 10% + next £33,300 at 22% = £40,485)

I'm coming up to £33,000 soon and not sure whether to re-arrange my
savings.

Can anyone give me a simple answer please?
Then either the Pru site is wrong or you're misinterpreting it.
The £33,300 is the amount of "taxable income" which doesn't include
the personal allowance, so the relevant figure for your purposes is
£5,035+£33,300 = £38,335.

The £7,185 includes the personal allowance and the £2,150 10% band,
so it makes no sense to add 7185 and 5035.
The £33,300 includes the 10% band, so the width of the 22% band
is £33,300-£2,150 = £31,150.
 
P

Peter Saxton

Hi - I'm getting a bit confused here (not hard!)trying to find out at
what salary point you start paying tax at 40%.

Looking at the HMRC site (and a few others), it says higher rate applies
after £33,300
Isn't the amount you are looking at £33,400.
Looking at the Prudential site, it says £40,485 (ie £5,035 personal
allowance + £7,185 at 10% + next £33,300 at 22% = £40,485)
What's the link?
I'm coming up to £33,000 soon and not sure whether to re-arrange my savings.

Can anyone give me a simple answer please?
No.

It depends on your situation.

It's not your salary that is the important point. It's your total
income.

The majority of working people would not pay tax at 40% until their
income was over £38,335.
 
R

Ronald Raygun

Peter said:
Isn't the amount you are looking at £33,400.
No, <www.hmrc.gov.uk/rates/it.htm> shows £32,400 for 2005/6 and
£33,300 for 2006/7.

I'm wondering why they're showing allowances for 2006/7 and 2007/8,
but bands for 2005/6 and 2006/7. You'd have thought they'd show
complete information for the same pair of years, instead of for just
one year, with partial information for two others.
 
P

Peter Saxton

No, <www.hmrc.gov.uk/rates/it.htm> shows £32,400 for 2005/6 and
£33,300 for 2006/7.
I took the information from the same place so I must be cracking up!
I'm wondering why they're showing allowances for 2006/7 and 2007/8,
but bands for 2005/6 and 2006/7. You'd have thought they'd show
complete information for the same pair of years, instead of for just
one year, with partial information for two others.
I would have thought they would have had complete information for
2005-2006 because the deadline is for submission is 31 January 2007
and complete information for 2006-2007 because it is the current year.
The personal allowances have been decided for 2007-2008 but the rates
have not been decided. It would still be better to have a matrix with
the three years showing even if they put something like "to be
decided" in the 2007-2008 taxable bands.
 
R

Ronald Raygun

Peter said:
I took the information from the same place so I must be cracking up!
That gentleman in the other newsgroup has a lot to answer for!
 
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J

Jeff

Peter said:
What's the link?

No.

It depends on your situation.

It's not your salary that is the important point. It's your total
income.

The majority of working people would not pay tax at 40% until their
income was over £38,335.
Thanks for the replies - it's becoming a bit clearer to me now!

I'd always assumed that once your salary hit a certain point then you
became a higher tax rate payer, but now I know better :)

Oh - that link I was looking at is here:

http://www.pru.co.uk/save_invest/guides_tools/tax_man/

Thanks again,

Jeff
 
P

Peter Saxton

That gentleman in the other newsgroup has a lot to answer for!
There's a certain fascination with someone explaining how the system
should be improved yet at the same time saying he doesn't understand
the system.
 
P

Peter Saxton

Thanks for the replies - it's becoming a bit clearer to me now!

I'd always assumed that once your salary hit a certain point then you
became a higher tax rate payer, but now I know better :)

Oh - that link I was looking at is here:

http://www.pru.co.uk/save_invest/guides_tools/tax_man/

Thanks again,

Jeff
Thanks

You misread the table. It should have been obvious to everyone when
you said: "Looking at the Prudential site, it says £40,485 (ie £5,035
personal allowance + £7,185 at 10% + next £33,300 at 22% = £40,485)"
 
W

whitely525

Peter said:
Thanks

You misread the table. It should have been obvious to everyone when
you said: "Looking at the Prudential site, it says £40,485 (ie £5,035
personal allowance + £7,185 at 10% + next £33,300 at 22% = £40,485)"
So the table from the Pru is simply wrong..?
 
R

Ronald Raygun

So the table from the Pru is simply wrong..?
Yes.

There is a spurious reference to £32,400 in the first column.

The other mistake is that, having referred to "the first £5035"
and "the next £2150", it is then wrong to refer to "the next £33,300",
because those 33300 includes the 2150, i.e. it is the combined width
of the first two taxable bands, not just the width of the 22% band.

Hence taxable income of £33,300 is the most you can have without
paying higher rate, and of this £33,300, the first £2150 is taxed
at 10% and the next/other £31,150 at 22%. Adding the £5035 personal
allowance means your total income can be £38,335 before the 40%
rate kicks in.

The £40,485 figure is wrong and should be £38,335.

The £7,185 figure is correct. You can have that much income before
paying tax at 22%. If you earn £7185, you pay only £215 tax.
 
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