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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.
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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
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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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Cheers, damn sight clearer than all the websites I have looked at.
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