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40% Higher Rate Income Tax for earning £35k


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From 5th April 2011, anybody earning over £35k will pay the Higher Rate 40% Income Tax.

 

40% income tax on £35k is £14k, leaving the worker with £21k before other deductions.

 

A worker earning £26k pays £5,200 (20%) also leaving around £21k (£20,800).

 

So under the new rules, a person earning £35k will roughly have the same take home pay (around £21k) as somebody earning £26k, possibly less after paying NI.

 

A person earning £34k paying Basic Rate will come out with £27,200 before other deductions though. A Higher Rate payer would have to be on £45k to come out with the same after income tax. I wonder how many people earning just above £35k will be volunteering for a paycut to £34,999, and does this fall within the realms of tax avoidance?

 

I suggest you let anybody know that's on £35-£45k, it may be worth them taking the pay cut.

 

 

 

Maths clearly isn't your subject.

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I thought it was the whole amount?

 

We've always used tax bands.

 

The current system is something along the lines of

 

0-7k = 0% tax,

7k-40k = 20% tax

40k-100k = 40% tax

100k + = 50% tax

 

but the tax is progressive - if you earn 60k you would be taxed 7k at 0%, 33k at 20% and 20k at 40%. Not 40% on the total.

 

(figures are approx)

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mj - you don't pay 40% on the whole lot, you pay 40% on the amount over the threshold.

 

So to make it easy, if you earn £40k and the threshold for 40% is £35k, you only pay 40% of £5000

 

It's still quite a jump though..a thousand pounds a year...

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