Income Tax - where does higher rate begin?

[Bozza]

Discussion here in the office - where does the higher rate (ie 40%) income tax rate begin?

Assume a 'normal' person with a £6,475 personal allowance.

They then pay 20% on the first £37,400 of income....

...and 40% on anything above that.

So, does 40% begin at:

a) £37,400
b) £43,875 (being £6,475 + £37,400)

(Inland Revenue details - HM Revenue Customs: Rates and Allowances - Income Tax)

 

[Kick Ass Minton]

I Believe its option b but happy to be corrected....

 

[DIFFBROOK]

It'll be anything above £37,400

The first £6,475 of your income is tax free. Income between £6,475 - £37,400 is taxed at lower rate, then anything above is taxed at 40%

Well thats how I understood it

 

[KneeOn]

B

The first 6000 odd is free, the next lot until 37 odd thousand is at 20.
so i think it starts at 43 K roughly. I think...

 

[ILOVEBHA]

Option B is the correct answer

 

[Simster]

It is B

 

[Marshy]

B for definate

 

[saafend_seagull]

yup B, had an ACCA exam on it last year

Income =========70,000
PA=============6,475
Taxable income====63,525

37400 at 20%=====7480
26125 at 40%=====10450

 

[Brightonfan1983]

So say I earn £50,000 (I wish), I pay 20% on £30, 925, and 40% on £19,075... is that what you've all said?

 

[Brightonfan1983]

Yes it is ....

 

[Bozza]

So say I earn £50,000 (I wish), I pay 20% on £30, 925, and 40% on £19,075... is that what you've all said?

No...

£6475 - no tax
£37400 - 20% tax
£6125 - 40% tax

 

[DIFFBROOK]

Mmm, are you all sure? This is taken from HMRC site


Income Tax rates and taxable bands

Basic rate: 20% £0-£37,400

Higher rate: 40% £37,401-£150,000

Additional rate: 50% Over £150,000

The personal allowance of £6,475 is tax free, but itz not added on top, its counted first in any income

 

[Bozza]

Mmm, are you all sure? This is taken from HMRC site


Income Tax rates and taxable bands

Basic rate: 20% £0-£37,400

Higher rate: 40% £37,401-£150,000

Additional rate: 50% Over £150,000

The personal allowance of £6,475 is tax free, but itz not added on top, its counted first in any income

This Direct Gov page says 'Amount above the personal allowance'

 

[saafend_seagull]

Mmm, are you all sure? This is taken from HMRC site


Income Tax rates and taxable bands

Basic rate: 20% £0-£37,400

Higher rate: 40% £37,401-£150,000

Additional rate: 50% Over £150,000

The personal allowance of £6,475 is tax free, but itz not added on top, its counted first in any income

Yes i am 100% sure, unless the ACCA exam board have it wrong.

 

[DIFFBROOK]

Yes i am 100% sure, unless the ACCA exam board have it wrong.

I bow to yours and Bozzas superior knowledge

 

[Safeway]

If you need to ask you probably don't need to know.

 

[Bozza]

If you need to ask you probably don't need to know.

Very good.

When I get home I could consult a payslip and "do the math" but I wanted to hear from NSC's taxation experts.

(I'm asking because of some advice given (ie it works per 'a' above) relating to a tax calculator in a software application I'm involved with, and I believe the advice to be wrong (ie I think/know it works per 'b').)

 

[lighthouse]

Mmm, are you all sure? This is taken from HMRC site


Income Tax rates and taxable bands

Basic rate: 20% £0-£37,400

Higher rate: 40% £37,401-£150,000

Additional rate: 50% Over £150,000

The personal allowance of £6,475 is tax free, but itz not added on top, its counted first in any income

The tax bands above are applied to your 'taxable income' The first £6475 of your income is not taxable so you can earn that first tax free in effect.

Then apply the bands starting from £6476 and up

Hope that helps.