Depending on what you earn, depends on the rate of tax that you pay.
So, how much can you earn before paying 40% tax?
There are currently three rates of tax on earnings here in the UK.
Here we’ll go through each of the different tax brackets and at what point you can expect to start paying what.
The basic rate of 20% is what everyone pays if they have taxable income up to £31,785. However, if, in addition, you are entitled to the standard personal allowance of £10,600 then you can earn a total of £42,385 before hitting the higher rate tax bracket.
The higher rate, the one that this article is all about, is 40%. If you earn from £42385 (so including personal allowance) to £150,000 in a year then you can expect to pay the 40% rate of tax.
Finally, the additional rate of 45% will be paid by anyone who earns over £150,000 a year.
Do you have a savings account? If so then it’s worthwhile you knowing that savings interest is automatically taxed at 20%. If you’re on a low income though, you may be able to get tax-free interest or some of the tax that you have already paid refunded.
Higher or additional rate taxpayers will need to pay more tax than this. Also, if you own shares in a company and you’re a higher or additional rate taxpayer, you will have to pay extra tax on any dividends that you receive.
Well, when we say you’ll pay less income tax, it’s called tax relief and this means one of two things. The first being that you pay less tax to take account of money that you’ve spent on specific things, like business expenses if you’re self-employed.
The second being that you get tax back or you can get it repaid in another way such as by making contributions to a personal pension.
Tax relief applies to a number of different things such as pension contributions and charitable donations, as well as time spent working on a ship outside the UK.
Just in case you were wondering, tax relief also applies to work or business expenses and you may be able to get tax relief on what you spend running your business if you’re self-employed, a sole trader or partner in a partnership.
One other thing that you may be able to claim tax relief on is if you’re employed and you use your own money for travel and other things that you’re required to buy for your job. For more information on tax relief, get in touch with us here at K.A.Farr & Co via phone on 01704 211434 or email on firstname.lastname@example.org and one of the team will be more than happy to help you.