UK income TAX brackets

[WhatTheGox]

Hi,

Trying to work out how UK income tax brackets work. As far as i can tell you pay 0% up to £10k? 20% up to like 35k? and 40% beyond that.

Anyone have some accurate information?  The mrs is dropping work hours and we are wondering if there is any advantage to dropping more to get in a lower tax bracket, at the moment im thinking not since she isnt a high earner.

[1714927177]

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[1714927177]

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[medUSA]

Trying to work out how UK income tax brackets work. As far as i can tell you pay 0% up to £10k? 20% up to like 35k? and 40% beyond that.

Nearly correct, there is a 45% bracket as well.

Basic rate 20% = £0 to £31,785 (Above your Personal Allowance)
Higher rate 40% = £31,786 to £150,000 (Above your Personal Allowance)
Additional rate 45% = Over £150,000 (Above your Personal Allowance)

Your personal allowance varies. Depends on age, martial status, disabilities. For most, it's £10k. Check this yourself:
https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past

[WhatTheGox]

Trying to work out how UK income tax brackets work. As far as i can tell you pay 0% up to £10k? 20% up to like 35k? and 40% beyond that.

Nearly correct, there is a 45% bracket as well.

Basic rate 20% = £0 to £31,785 (Above your Personal Allowance)
Higher rate 40% = £31,786 to £150,000 (Above your Personal Allowance)
Additional rate 45% = Over £150,000 (Above your Personal Allowance)

Your personal allowance varies. Depends on age, martial status, disabilities. For most, it's £10k. Check this yourself:
https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past

Excellent just what i needed, so you can earn up to £10k and not pay tax, thats actually alright! - you know, alright considering they raping us overall. Thanks

[medUSA]

Excellent just what i needed, so you can earn up to £10k and not pay tax, thats actually alright! - you know, alright considering they raping us overall. Thanks

Telling me... Income tax base rate at 20% and VAT at another 20%, 40% of our income is gone to the incompetent government.

[NUFCrichard]

Excellent just what i needed, so you can earn up to £10k and not pay tax, thats actually alright! - you know, alright considering they raping us overall. Thanks

Telling me... Income tax base rate at 20% and VAT at another 20%, 40% of our income is gone to the incompetent government.

Only if all of your outgoings are on VAT applicable items.  As (from wiki) basic food, water, prescription medications, medical equipment and medical supply, public transport, children's clothing, books and periodicals are VAT free, it will be less than that.

Being a bit more pedantic, if you take 80% of your wages home, and pay 20% VAT on everything, you would still be paying 36% tax total, not 40%.  Nationals insurance will take it well above that, but then there are lots of other tax breaks and incentives too.  Tax being high when services are good is no problem to me, it's when they are used for stupid wars or inefficiently wasted that it annoys me more.

[stallion]

Trying to work out how UK income tax brackets work. As far as i can tell you pay 0% up to £10k? 20% up to like 35k? and 40% beyond that.

Nearly correct, there is a 45% bracket as well.

Basic rate 20% = £0 to £31,785 (Above your Personal Allowance)
Higher rate 40% = £31,786 to £150,000 (Above your Personal Allowance)
Additional rate 45% = Over £150,000 (Above your Personal Allowance)

Your personal allowance varies. Depends on age, martial status, disabilities. For most, it's £10k. Check this yourself:
https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past

this is really helpful thanks for this i am kind of new to all this myself as well so i had no idea either i tried asking a bunch of my friends but they had no idea either

[pawel7777]

Excellent just what i needed, so you can earn up to £10k and not pay tax, thats actually alright! - you know, alright considering they raping us overall. Thanks

I think you've got it slightly wrong. You don't lose your personal allowance if you earn above those £10k (unless you earn above ~£120k).

So if you earned say £15k, you still pay zero on those £10k and 20% on the remaining £5k. In other words, it doesn't make sense to reduce your working hours/earnings to stay in the lower bracket.

[WhatTheGox]

Excellent just what i needed, so you can earn up to £10k and not pay tax, thats actually alright! - you know, alright considering they raping us overall. Thanks

I think you've got it slightly wrong. You don't lose your personal allowance if you earn above those £10k (unless you earn above ~£120k).

So if you earned say £15k, you still pay zero on those £10k and 20% on the remaining £5k. In other words, it doesn't make sense to reduce your working hours/earnings to stay in the lower bracket.

Yeah i have just worked that out, thats pretty decent.  If my business earns near up to the next bracket im shutting it down for the rest of tax year, fk paying 40%.  This is a big IF atm.

[pawel7777]

Excellent just what i needed, so you can earn up to £10k and not pay tax, thats actually alright! - you know, alright considering they raping us overall. Thanks

I think you've got it slightly wrong. You don't lose your personal allowance if you earn above those £10k (unless you earn above ~£120k).

So if you earned say £15k, you still pay zero on those £10k and 20% on the remaining £5k. In other words, it doesn't make sense to reduce your working hours/earnings to stay in the lower bracket.

Yeah i have just worked that out, thats pretty decent.  If my business earns near up to the next bracket im shutting it down for the rest of tax year, fk paying 40%.  This is a big IF atm.

Why would you shut it down for the rest of the year? It's better to pay 40% and have 60% for yourself than nothing. Not to mention there are a lot of deductible expenses you can use.

Or better yet, if you expect decent earnings from your business, then consider setting up limited company. You can pay minimum wage to yourself and release the rest through dividends in the most tax efficient way.

Good luck.

[WhatTheGox]

Excellent just what i needed, so you can earn up to £10k and not pay tax, thats actually alright! - you know, alright considering they raping us overall. Thanks

I think you've got it slightly wrong. You don't lose your personal allowance if you earn above those £10k (unless you earn above ~£120k).

So if you earned say £15k, you still pay zero on those £10k and 20% on the remaining £5k. In other words, it doesn't make sense to reduce your working hours/earnings to stay in the lower bracket.

Yeah i have just worked that out, thats pretty decent.  If my business earns near up to the next bracket im shutting it down for the rest of tax year, fk paying 40%.  This is a big IF atm.

Why would you shut it down for the rest of the year? It's better to pay 40% and have 60% for yourself than nothing. Not to mention there are a lot of deductible expenses you can use.

Or better yet, if you expect decent earnings from your business, then consider setting up limited company. You can pay minimum wage to yourself and release the rest through dividends in the most tax efficient way.

Good luck.

Well the possible deductible things wont change no matter what bracket you are in or do they? and if you earn say 33k in a year you'd be better off stopping your earnings at 30k wont you? (you'll pay 40% on everything over the personal allowance if you break above 31.7k?)

As for the limited company set up ok thats a whole new thing i'd have to learn and will be a good problem to work on if and when it can happen.

[pawel7777]

Well the possible deductible things wont change no matter what bracket you are in or do they?

Yup, that was just a side note. But the more you earn, the more it pays to deduct all your expenses to keep the taxable income low. Most small businesses/self employed are not even aware of all the possible deductions.

...and if you earn say 33k in a year you'd be better off stopping your earnings at 30k wont you? (you'll pay 40% on everything over the personal allowance if you break above 31.7k?)

No. You only pay higher rate on the earnings above the lower bracket, not on entire amount. That's the point. You pay nil on PA, 20% on £10,600 to £42,385 and 40% on £42,386 to £150,000.

Try this calculator:

http://www.moneysavingexpert.com/tax-calculator/

Enter for example gross earnings of £50k/year and you'll get the effective rate (tax paid/taxable wage) of 23.9% (not 40%).

[WhatTheGox]

Well the possible deductible things wont change no matter what bracket you are in or do they?

Yup, that was just a side note. But the more you earn, the more it pays to deduct all your expenses to keep the taxable income low. Most small businesses/self employed are not even aware of all the possible deductions.

...and if you earn say 33k in a year you'd be better off stopping your earnings at 30k wont you? (you'll pay 40% on everything over the personal allowance if you break above 31.7k?)

No. You only pay higher rate on the earnings above the lower bracket, not on entire amount. That's the point. You pay nil on PA, 20% on £10,600 to £42,385 and 40% on £42,386 to £150,000.

Try this calculator:

http://www.moneysavingexpert.com/tax-calculator/

Enter for example gross earnings of £50k/year and you'll get the effective rate (tax paid/taxable wage) of 23.9% (not 40%).

OK thanks pawel that is awesome, maybe i need to enquire to hire you to do my accounts when the business is earning a little more.

It seemed logical that you wouldn't pay 40% on the total amount above PA but then i hear people of stopping their business for the year because they dont want to hit the next tax bracket.... perhaps what they must of meant was they didnt want to work just as hard for 20% less money ongoing (jump from 20%-40%).

[pawel7777]

OK thanks pawel that is awesome, maybe i need to enquire to hire you to do my accounts when the business is earning a little more.
...

No worries mate, always happy to help. If/when your business gets a traction you should definitely approach few tax advisors/chartered accountants for quick consultancy to see what they can do for you (I'm not qualified, just an enthusiast). In many cases they could save you more money than their fees, so it's worth a try.

[dblink]

I never know that UK has this sort of stringent Tax rules, I feel in the current system there is more correlations exist between Tax and Interest rates, is there any work around to be in this world or in any country where we can lead our life free from Taxes and Interests.

[pawel7777]

I never know that UK has this sort of stringent Tax rules, I feel in the current system there is more correlations exist between Tax and Interest rates, is there any work around to be in this world or in any country where we can lead our life free from Taxes and Interests.

UK's tax rules are designed in pretty sensible way imo, they can be pretty complicated and complex, but it's for a reason. From lower income workers and newly self-employed point of view, it's probably better to have allowances on tax, capital gains, dividends and interest than flat tax rate on everything.

And yes, there are few countries with no income tax at all (i.e. Bahrain, United Arab Emirates, Qatar)

[WhatTheGox]

I never know that UK has this sort of stringent Tax rules, I feel in the current system there is more correlations exist between Tax and Interest rates, is there any work around to be in this world or in any country where we can lead our life free from Taxes and Interests.

Im actually pretty pleased with it hearing how it works, getting 10k non taxed is great for me i can actually live on less than this as not into hardly anything material possessions wise.

If me and the mrs want we can both earn 10k, not work too hard and have 20k a year tax free if things dont expand further, our working lives would be easy.  We have no kids, no pets, not into cars i'd prefer to not even have one.   Only thing we want is perhaps a half decent house so might need to earn more for that reason only.

where are you from and how different do taxes work there? (anyone feel free to answer)