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/biz/ - Business & Finance

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304736 No.304736[DELETED]  [Reply] [Original]

Hello!

I'm relatively new to the working world as I am a graduate, so call me a real world newb that wants to understand how it all works...

At the moment I earn £20k a year, with a view to increasing my salary to about £30k in the next couple years.

I have had a look at the tax brackets for the UK and I have learnt that if I earn £31866 between now and 2015 I will get taxed 20%.

However if I were to receive a pay rise of just £1, I would have to start paying 40% tax.

That means someone who earns £30k would get a personal allowance matching someone who got paid £40k...


So to all the UK finance aficionados on here please could you answer the following questions...

Is this really the case or am I missing something here?

If it really is that simple, how do people earning £32k for example, not kill themselves knowing getting paid less means earning more money?

What steps can one take to avoid this 40% tax trap?

Thanks!

>> No.304739
File: 15 KB, 394x429, UK Tax Brackets.png [View same] [iqdb] [saucenao] [google]
304739

>> No.304747

>>304739

Holy shitballs. Tax rates on dividends in UK are ridiculous.

>> No.304751

no, you only have to pay 40% on that £1 extra, if I am correct

>> No.304763

>>304751
THIS

>> No.304768

>>304751
>>304763
That makes 50% more sense...help me understand fully.

if you are paying 40% tax on that £1, how much tax is levied on the other £31k or so?

>> No.304795
File: 201 KB, 307x301, 1364166824014.png [View same] [iqdb] [saucenao] [google]
304795

Wage slave plz go

>> No.304835

>>304736

Let's assume you make £50,000 p.a. You're levied a 20% tax on the first £31,865 (so a £6273 bill), plus a 40% tax on the remaining £(50,000-31865) = £18135 (so a £7254 bill). The total amount of taxes paid is the sum of these two numbers, for a total tax bill of £13527.

Got it?

(Also, nice job on the name. Medium lel.)

>> No.304853

>>304835
Gotcha thanks!

>> No.304912

>how do tax scales work

>> No.304920

>>304768
20%

>> No.304945

Almost, but not quite. You forgot the tax allowance.

If someone is making 50k p.a., then

50 000 - 10 000 tax allowance = 40 000 taxable income.

40,000- 31,866 = 8,134

31,866 taxed at the basic rate of 20% = 6,373
8,134 taxed at the higher rate of 40% = 3,354

Total tax bill is 9,727.

>> No.304953

>>304795
>wage slave
Please go, underaged.

>> No.304961

>>304945
I'm not a Brit, so such nuances evade me.

In general tax brackets work the same everywhere, though.

>> No.304969
File: 34 KB, 493x402, 1314273683393.png [View same] [iqdb] [saucenao] [google]
304969

>>304945
>make 50K
>only pay 10K in taxes
Oy vey, to live in belgium.... where one would pay 30K

>> No.304973

And remember kids, tax avoidance is a crime but tax efficiency isn't!

>> No.305011
File: 2 KB, 196x160, 1316382354790.png [View same] [iqdb] [saucenao] [google]
305011

>>304973
>tax avoidance
I prefer the term "fiscal creativity"

>> No.305012
File: 14 KB, 176x137, jesus christ how horrifying.jpg [View same] [iqdb] [saucenao] [google]
305012

>>305011
Or "creative accounting"

>> No.305037

>>304973
>>305011
>>305012

Plebs. Tax optimization is where it's at.

>> No.305281

>tfw daddy is in the 45% tax bracket
>tfw my inheritance buys peasants their cigarettes and lottery tickets

feels bad