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Higher tax rate band

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Hi Mates,

I am new for UK Tax. I have a basic question on tax rate bands and personal allowance for taxpayer whose annual salaries is over £125,140.

I read the textbook that the basic rate is used to calculate the first £37,700 and the higher rate is used to calculate the salaries from £37,701 to £150,000 (£112,300). I found this tax rates and bands (after the personal allowance) from the government webiste.

But I also find the one before the personal allowance, the higher rate is from £50,271 to £150,000 (£99,730).

I am confused that which figure should I use to calculate the higher rate when the taxpayer's salaries is over £150,000. And why there is difference?

Thank you.

Replies (17)

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By David Ex
18th Apr 2022 20:06
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By MCV71
18th Apr 2022 20:20

It's £37,700 AFTER the personal allowance.

£37,700 plus £12,570 PA gets you to the £50,270 you mention.....

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By Latecomercamefirst
18th Apr 2022 21:59

You don't get personal allowance if your adjusted net income is above £125,140 and the personal allowance is restricted by half for each £1 if your adjusted net income is above £100,000.

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By Hugo Fair
18th Apr 2022 22:43

"But I also find the one before the personal allowance, the higher rate is from £50,271 to £150,000 (£99,730)."

For accuracy it's best to use these band thresholds - since you can't always be sure what the free-of-tax amount will be for an individual until you've collected all sorts of other info (it's not just the Personal Allowance that determines how much is FOT).

Note: there can be quite a lot of factors impacting on tax calcs at this level of earnings (for instance if there are also pension contributions), so if this is more than idle curiosity you should really sit down with a payroll specialist and discuss all the options.

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Replying to Hugo Fair:
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By rmillaree
19th Apr 2022 08:30

I would agree with hugo - i am presuming that when hugo says "band thresholds" they mean start with the £99,730 in that band - as you may have no persoanl allowance so the £50271 and 150k amounts may siomply not be relevant.

Also as hugo says these each band may be adjusted - eg pension payments.

Practicably speaking the tax calcs now are bordering on the impossible for some quirky income types without the use of software than can best allocated personal allowance - this being the case i would never rely on any manual tax calc now without double checking my manual calcs to see if (1) i have got something wrong (2) there is a better solution to using the personal alowance that i have no means of working out easily manually (perhaps there are cheat sheets available?)

Thankfully if you dont have approved calculator if you post "full calc here" you should be able to check your sanity. Generally if you wnat to check calc please post full details - as anything might on the calc might affect the calc in ways you might not expect (primarily personal allowance useage - but also some items that are taxed at 0% can increase your tax bil when added as line item depsite being taxed at 0% ) - the best you can hope for witrhout full details if that that should work presuming there is nothing quirky.

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Replying to Hugo Fair:
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By louief
19th Apr 2022 09:53

Thank you for reply.

I am studying the tax. Very beginning. I know the tapering of the Personal Allowance (PA) and other factors would affect the tax band. I just don't understand the tax bands and would like to seek some clarification whether my understanding is correct or not.

Basic (£1 to £50,270) - 20%
Higher (£50,271 to £150,000) - 40%
Addition (over £150,001) - 45%

1) If a taxpayer entitles full PA, his salaries from £1 to £12,570 should be 0%. Then his salaries from £12,571 to £50,270 should be 20%.

2) If a taxpayer does not entitle any PA:
a) his salaries from £1 to £50,270 should fall in 20%?
or
b) his salaries from £1 to £37,700 fall in 20% (because no PA),
then £37,701 to £150,000 fall in 40%.
Can I say that his first £12,570 20% band shifts to 40% band.

P.S. I am studying the tax by using ACCA workbook published by BPP.

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Replying to louief:
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By lionofludesch
19th Apr 2022 10:36

louief wrote:

Thank you for reply.

I am studying the tax. Very beginning. I know the tapering of the Personal Allowance (PA) and other factors would affect the tax band. I just don't understand the tax bands and would like to seek some clarification whether my understanding is correct or not.

Basic (£1 to £50,270) - 20%
Higher (£50,271 to £150,000) - 40%
Addition (over £150,001) - 45%

1) If a taxpayer entitles full PA, his salaries from £1 to £12,570 should be 0%. Then his salaries from £12,571 to £50,270 should be 20%.

2) If a taxpayer does not entitle any PA:
a) his salaries from £1 to £50,270 should fall in 20%?
or
b) his salaries from £1 to £37,700 fall in 20% (because no PA),
then £37,701 to £150,000 fall in 40%.
Can I say that his first £12,570 20% band shifts to 40% band.

P.S. I am studying the tax by using ACCA workbook published by BPP.

You contradict yourself. You say £1 to £50270 is 20% then, later, that £1 to £12570 is 0%.

It's a complicated system that even HMRC's software can't cope with.

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Replying to louief:
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By rmillaree
19th Apr 2022 11:45

Presuming only employment income and no pension payments

"1) If a taxpayer entitles full PA, his salaries from £1 to £12,570 should be 0%. Then his salaries from £12,571 to £50,270 should be 20%."

Yes - basic rate band (what you should concentrate on) is £37,700 - so way to look at it is as follows

£12,570 - covered by pa no tax
£37,700 - basic rate band taxed at 20% - £37,700 taxed at 20%

2) If a taxpayer does not entitle any PA:
a) his salaries from £1 to £50,270 should fall in 20%?
No - as basic rate band is £37,700

"b) his salaries from £1 to £37,700 fall in 20% (because no PA),
then £37,701 to £150,000 fall in 40%.
Can I say that his first £12,570 20% band shifts to 40% band."

Yes - note strangely 150k is with reference to total income - unlike the 50270 that may not be - certainly presentationally speaking its confusing.

Also to confuse marginal rate of tax on income 100k to 125k is actually 60% - so if you add on £1 of income in that range tax goes up by 60% - as pa is removed on sliding scale - tax shows up as being at 40% but there is 50% more at 40% for each £1 of income over 1000k

"Can I say that his first £12,570 20% band shifts to 40% band."
Thats confusing speak IMHO - i would concentrating on correct calcs to begin with and understanding that fully before moving on to what replaces where and when - the first £12,570 of the basic rate band will always be the first £12,570 of the basic rate band so in this reagard i would say your quote is wrong !

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By lionofludesch
19th Apr 2022 07:11

Wait til you try to fathom out HICB and personal allowance clawback and why there are islands of 60+% marginal rates in the middle of the 40% band.

I've never grasped the logic myself.

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Replying to lionofludesch:
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By Tax Dragon
19th Apr 2022 07:20

I agree. Couples (in marriage/civil partnership) should have a fully transferable personal allowance, but with relief for a recipient spouse limited to basic rate. Makes much more sense.

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Replying to Tax Dragon:
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By lionofludesch
19th Apr 2022 07:35

Absolutely. We were much better off prior to separate taxation. What we needed was the ability to move the allowance both ways.

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Replying to lionofludesch:
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By Tax Dragon
19th Apr 2022 07:51

When I'm PM will you be my Chancellor?

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By lionofludesch
19th Apr 2022 08:14

Of course.

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By MCV71
19th Apr 2022 08:44

Can you both please take care to not be ambushed by cakes

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By lionofludesch
19th Apr 2022 08:56

[chuckle]

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Replying to lionofludesch:
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By accountaholic
19th Apr 2022 13:38

I remember studying tax at uni in the 80s when separate taxation was a hot topic for the lecturer.
If I'm dusting down my notes on that maybe in the current climate we will also need to resurrect inflation accounting!

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By Ardeninian
19th Apr 2022 09:16

Remember that the vast majority of people have a full personal allowance, so as far as they are concerned the higher rate starts at £50,271 (£37,700 plus £12,570 as others have said).

But when doing an actual tax calculation you have to deduct the personal allowance (Step 3 of the income tax calculation) before applying the tax rates to the various types of income (Step 4) - have a look at s23 ITA07.

So if total income is below £100k, you take off the personal allowance of £12,570, then apply basic rate to the first £37,700 of what's left, and higher rate to the remainder*.

If total income is above £125,140, there's no personal allowance to take off: still apply basic rate to the first £37,700, higher rate to the next £112,300, additional rate to the remainder.

Total income between £100k and £125,140? Work out the reduced personal allowance, take it off, apply basic rate to the first £37,700 of what's left, and higher rate to the remainder*.

*Of course, when I say "total income" I mean "adjusted net income" - see s58 ITA07. So you can have a situation where there is a personal allowance but also there is tax at the additional rate.

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