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Sam
Sam, Accountant
Category: Tax
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Fpr the last 2 tax years i have hit the higher earning tax

Resolved Question:

Fpr the last 2 tax years i have hit the higher earning tax threshold and i am now facing a refund request from HMRC at the end of each tax year as well as paying a big increase in income tax each month. As i am not massively over the threshold in salray terms is it better i bring my earing just below the cut off to avoid paying all the additional tax?
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi

Thanks for your question

Usually this situation arises due to changes of income over £100,00 which interfers with the personal allowance awarded (as adjustments have to be made) or due to company benefits, if there are frequent changes to company car etc.

But if your income is less than £100,000 then unless you have frequent coampny car changes, then this should not be happening, and what you then have to weigh up is whether the additional salary (be it though that 40% tax due on it) is better than that loss of salary.

Or you may have other income that needs considering at the year end.

But to keep HMRC informed throughout the year of ANT change would prevent unpaid tax being owed.

Perhaps you could advise what your salary is and the company benefit situation - along with details of any other incomes you might have, to see if this can be resolved.

Thanks

Sam
Customer: replied 3 years ago.


Hi,


 


The issue is one of my earnings going over the £100k band. In 2012/13 my gross earnings were £105k + £2k of taxable flexible benefits. This resulted (as in the previous year) in significant increase in tax paid per month + an under payment of £2.9k at the end of the year due by 11th April.


 


In 2013/14 i estimate my earnings could be c.£110k made up of £94k basic and an uplift of £16k to cover flexible benefits or take cash in lieu as part of my salary (then subject to income tax etc).


 


I was planning to actually spend the flexible benefits fund on benefits to bring my overall gross earnings down as i currently take the majority of that additional fund as cash in lieu which is the primary cause of my tripping over the £100k threshold.


 


Q. will this help me reduce the amount of income tax i pay as i am not sure (to your point) that taking it as additional salary then paying all the extra income tax is worth it.

Expert:  Sam replied 3 years ago.
Hi

Thanks for your response and the additional information

Only you can decide whether suffering this additional tax at year end is worth it, but as your income has fluctuated from 2023/2013 and 2013/2014 then you are going to always suffer additional tax, each time this takes place.
Its either a question of stabilising your income so it remains the same - or alert HMRC of the change, or, as we are not at 2013/2014 year end, pay some of your money into a pension plan - your first port of call should be with any company pension you have, to establish what contributions you had mad so far, to see if there is scope to make an additional voluntary contribution,
This will help your tax position, as any payment made after the salary has been subject to tax through PAYE, only ges the benefit of 20% tax relief on top of the payment made, but as you will always be a 40% taxpayer, if you were able make a contribution of £10K this tax year, this would bring your total income position down nearer to the £100K threshold, which would mean
1) No loss of personal allowances
2) A refund of 20% tax on the contribution made (as the extra 20% due is made back to you)
3) stabilise your income and allow you to make this additional payment to the pension plan, each time you know what the flexible benefit fund will be.

Its worth a consideration

Thanks

Sam

Customer: replied 3 years ago.

Many thanks.


One final question.


 


Do i pay an additional rate of income tax when i get above the £100k threshold or is 40% the upper limit.

Expert:  Sam replied 3 years ago.
Hi

Thanks for your response and further question

No - income above £100,000 to £149,999 is still all 40% - it only increases when total income is in excess of £150,000 and then any income over that amount is liable to 45%

Thanks

Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13778
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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