Can any payroll/accountancy types out there clear something up.
Most websites on tax codes show that the individual is allowed to earn £9440 tax free, then £32,010 at 20% giving a total of £41,450 before 40% is applied.
My question is, if your tax code is 613L (tax free amount of £6,135 due to a company car) does the £3310 difference count to the £32,010 meaning your overall total is less than the stated 40% rate, or do the two higher figures apply. It's so confusing. If anyone can help, could I PM them with more details please.
You pay tax on taxable income, which is equal to gross income less tax free allowance. The reduction in tax free allowance doesn't alter the threshold for 40% tax rate. Take your gross income and deduct the £6135 tax free allowance to give your taxable income. If that's above £32010 then you'll pay 40% tax on the difference. So basically in this case you pay 40% on any gross earnings above £38145
Say you earned £46,000 - you would deduct your personal allowance of 6135 giving a taxable amount of 39865.
From this you deduct 32010 which is chargeable at 20% -the balance of 7855 is chargeable at 40%
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