Are you paying 40% tax?

[oxocube]

I thought I would post this after reading about sparks going to work in Afghanistan but having to pay uk tax.

If you're paying 40% tax there is a way of getting all of it back.

So you earn £1000, IR takes £400 leaving you with £600, not good you're £400 down.

But if you pay the £600 into a pension fund heres what happens, the pension fund claim your tax back at the 22% rate ie £220 and add it onto your £600, giving you an investment of £820. It gets better, the IR now refund you the excess tax ie 40% - 22% = 18%, thats £180.

So you end up with an £820 investment that has cost you £600-£180 = £420.

Edit - Just realised the figures above are for tax year 07/08. For 11/12, 22% becomes 20% and 18% becomes 20%.

So you would have a £600 + £200 = £800 investment and a £200 tax refund, an £800 investment that has cost you £400.

Sorry about that.

 

[JUD]

So you earn £1000, pay £400 tax and pay the other £600 into pension. What do you live on???

 

[oxocube]

So you earn £1000, pay £400 tax and pay the other £600 into pension. What do you live on???

You live on all the money paid below the 40% tax threshold.

 

[JUD]

I'm not with you.

You earn....................£1000
You pay tax................£400
You pay pension..........£600

£1000 - £400 - £600 = £0


Or do you mean the £1000 is your taxable pay?

 

[Silly Sausage]

I'm not with you.

You earn....................£1000
You pay tax................£400
You pay pension..........£600

£1000 - £400 - £600 = £0


Or do you mean the £1000 is your taxable pay?

Random figures...Say you earn £4000/month, £3000 is taxed at lower rate, £1000 taxed at 40%, it's that amount oxo's referring to.

 

[ian.settle1]

Dont forget though for the tax year 2011-12 the rate at which you start paying 40% has dropped from £37,401 to £35,001


HM Revenue & Customs: Income Tax allowances

 

[Silly Sausage]

Great advice, by the way, oxo.
Unfortunately not relevant for me at the moment! :sad_smile::sad_smile::sad_smile:

 

[JUD]

So, if I understand correctly...

You earn £4,000 per month, that's £48,000 per year.

Tax threshold is £7,475 so £48,000 - £7,475 = £40,725 (taxable pay)

£35,000 at 20% = £7,000 (leaves you with £28,000 to live on)
£5,725 at 40% = £2,290.

£3,435 into pension fund who then claim the basic rate tax (£7,000) back and add it to pension fund, or do they claim 20% off the higher tax rate (£1,145) and refund you the other 20%?

 

[ian.settle1]

So, if I understand correctly...

You earn £4,000 per month, that's £48,000 per year.

Tax threshold is £7,475 so £48,000 - £7,475 = £40,725 (taxable pay)

£35,000 at 20% = £7,000 (leaves you with £28,000 to live on)
£5,725 at 40% = £2,290.

£3,435 into pension fund who then claim the basic rate tax (£7,000) back and add it to pension fund, or do they claim 20% off the higher tax rate (£1,145) and refund you the other 20%?

See this link

Contribution Levels and Tax Relief - The Pensions Advisory Service (TPAS)

 

[JUD]

See this link

Contribution Levels and Tax Relief - The Pensions Advisory Service (TPAS)

So that means if you paid the £3,435 into pension fund HMRC would give you tax relief of 20% of the amount you have paid in (about £860) + and additional percentage ranging from 1% - 20% for the higher tax rate (depending on how much you earn over the 40% threshold) and add it to your pension fund.

So it's not as simple as the OP then.

 

[oxocube]

Well thats odd the pensions advisory service says the rebate varies from 1 to20%, but hmrc agree with me.HM Revenue & Customs: Tax relief on pension contributions

 

[Robinwood]

What is Tax ? I am rented