Currently, a taxpayer is entitled to a personal tax allowance of £12,570 p.a. which converts to a tax code of 1257. The tax code will usually be shown on the payslip. In some instances, the figure will be higher than this, but for many people it will be lower.
For those with taxable income in excess of £100,000 p.a. the personal allowance starts to erode. For every £2 of additional income, £1 is knocked off of the allowance. Therefore, when income reaches £125,140 the personal allowance is lost completely. The effect of this is that any income in the range £100,000 – £125,140 bears an effective tax rate of 60%, not 40%.
There are legitimate ways of reducing income – which may involve pension contributions, deferring income, salary sacrifice for other benefits such as additional holidays etc. and ensuring you are claiming all allowances such as Gift Aid etc.
If you are likely to be in this position, then contact us and speak with us today.
