Tax!!

A question about : Tax!!

hi, I'm really hope someone can help. I have been doing extra hours over the past year which has just taken me over the 20% tax threshold for this months pay....which has resulted in me paying a mega amount of tax because I have crept into the 40% tax bracket. Does this mean that my final wage of the year (at the end of March) will be fully taxed at 40% or just a portion of it? I am in panic mode thinking my full gross pay will be taxed at 40% leaving me about Ј600 worse off......I feel ill!

Best answers:

• No. You will only be taxed on the portion of income that falls into the 40% rate, above the 20% bracket.
• As the above posted said, that isn't the case. But as an aside, your pension contributions can reduce your 40% tax liability, if you do not contribute to a pension, it might be a good idea to consider doing so.
• Hi, thank you for your replies. I do have a pension but have still been taxed at the 40% rate this month. Because only my last 2 months pay of the year fall into the 40% tax bracket, how will they work out a portion? Sorry to sound really stupid (I am blonde!). With regards to next year, I intend to try and keep below the 40% tax bracket but will inland revenue assume that I will earn above again and alter my tax code to reflect this? So many questions....
• If you earn let's say 35,000 with your overtime and tax threshold starts from 30,000 for 40%
  First 30,000 will be at 20 %
  Remaining 5,000 will be at 40%
  There is also tax free allowance, pension etc. to put into this calculation.
  HMRC doesn't "assume" what you earn. They are told by your payroll.
• Thanks, I thought they would see my p60 and then assume that that would be my annual salary in the future too. This is just so confusing, I wish I could just work out what my net pay would be then I could stop panicking!
• There's no need to panic about anything at all. At the end of the tax year (05 April) they will look at your whole pay for the year and you'll get a rebate if you've been taxed too much.
  The first Ј10k you earn this tax year is free of tax.
  The next Ј31,865 is at 20%.
  You're then at 40% until earning over Ј150k a year.
  Your tax code is the same whether you pay basic or higher rate.
  So to work out your net pay this year, work out what you think you'll earn over the WHOLE tax year, then apply the percentages above. If they've taken too much, you'll get a rebate in April. (Don't forget to take off NI as well as tax or your calculations will be wrong.)
  HTH
  KiKi
• If you really want to understand your tax position then post the details of your last payslip and the payslip before that and it can be explained.
  Details needed are taxable gross, tax paid, tax code and basis, taxable gross to date and tax paid to date.
• Thanks, I haven't actually received this months payslip yet, I just spoke to HR who informed me of the tax change. However, I have last months and month before:
  Jan: taxable gross: 2525 tax paid: 266 tax code: 625l, tax gross to date: 32000.07 and tax to date: 5402.76
  Dec: taxable gross: 2781 tax paid: 253 tax code is same, tax gross to date: 29483.70, tax to date: 5135.85.
  I do tend to receive my overtime once every few months when I have done a big piece of work so one month I may get an extra 1800 gross for instance
  Hope I have given correct info!
• O.k each month you are given a tax allowance. So say you got Ј800 allowance in the first month (I'm unsure on the exact amount but this is to show the general principle), anything earnt above that you'd pay tax at 20% on. The second month you'd get another Ј800 allowance (so Ј1,600) in total. They'd work out how much you'd earned so far that year. You therefore should have paid 20% tax on anything above the Ј1,600. They subtract the tax you've already paid so far to work out what you need to pay that month. The next month you get another tax free allowance and they check whether you are ahead of having to pay tax or behind - whether you owe a chunk of tax or whether it's owed to you.
  It works in a similar way for the 40% bracket as well. Basically you only get taxed at 40% on the amount you are ahead of the tax allowance. If the following month you do little or no work, you would end up paying little, or no tax as you would have another months tax allowance and not have used much of it. Over the year it all balances itself out. You should find at the end of the tax year find that you have been taxed at 20% on anything above Ј10,000 and 40% on the bit above 31,866.
  df
• Thank you so much for taking the time to explain to me. My tax code seems to change quite often but I have been told that this is because I have a company car and health care benefit.
  My gross pay this month will be Ј3925 and the next month (final of the year) Ј2700 . My tax at the end of this month will be Ј827. I haven't seen my payslip, HR have just told me this and ultimately this is what got me panicking. What tax will I pay approximately next month based on these figures please?
• Quick calculation for next month tax will be about Ј830
  Will give it a full check and do month 12 later and show the calculations.
  Bear in mind as I said month 10 was lowered by the 40% to 20% recalculation, if it had not been for that you would have paid about Ј400 in tax.
  Your Ј2700 for final payment will be under the Ј3177 figure so you will get some of that tax as a reduction next month.
  The car and healthcare would certainly reduce your tax code but could not say by how what amount.
• As before figures a little bit rounded to keep the maths simpler.
  Month 10 was gross 32000 tax to date 5402
  Month 11 pay 3925
  to give year to date of 35925
  less tax free to date 5737
  taxable to date 30188
  Taxed at 20% is 29210 gives 5842
  Taxed at 40% is 978 gives 391
  5842 + 391 is 6233
  Less tax paid as at mth 10 of 5402 gives 831 tax due for mth 11
  Month 12 pay 2700
  to give year to date of 38625
  less tax free for the year 6259
  taxable for the year 32366
  Taxed at 20% is 31865 gives 6373
  Taxed at 40% is 501 gives 200
  6373 + 200 is 6573
  Less tax paid as at mth 11 of 6233 gives 340 tax due for month 12
  At the year end on total taxable earnings of 38625 you will have paid tax of something close to 6573 Of this 6373 will be tax paid at 20% and 200 tax paid at 40%
  I agree that with earnings varying as yours do it looks a bit dramatic as the tax figure changes but this is the way PAYE corrects itself as the year goes by, those low tax months were low because you were getting some tax back not because they were your "normal" tax figures.
• Thank you so much chrisbur, I am very surprised and happy that my tax next month (12) will only be Ј340! I thought that I would be taxed more or less the same as month 11 and was panicking about how to pay my bills! You have been so helpful and I really appreciate you taking the time to work this out for me
  I was also initially put off from doing extra pieces of work once I got this months figures but now feel reassured that it is worth it
• Glad you have seen the light on tax....limiting your income as you think the tax will make you worse off is a common mistake, and a wasted opportunity!