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What is your UK income tax rate?

Most UK income taxpayers believe it to be 20pc or 40pc, perhaps even 45pc but, of course, there is an extra ‘tax’ on earnings, known as National Insurance (NI)!

So, as salaries rise, the real UK income tax effective rates – including NI – change from 32pc to 42pc to 62pc then back to 42pc and, finally, to 47pc. And, as the great Michael Caine would say…. ‘Not a lot of people know that’

To clarify then. From April 2014 the ‘true’ rate of UK income tax on earnings over £10,000 is 32pc i.e. tax at 20% plus NI at 12pc. Then, on earnings over £40,000 approximately, the true incremental rate rises to 42pc i.e. tax at 40pc plus NI at 2pc.

The next turning point is when earnings reach £100,000 because, at this point, the incremental rate rises from 42pc to 62pc as, at this level of earnings, the ‘standard’ personal UK income tax allowance of £10,000 is withdrawn but then drops back to 47% i.e. tax at 45% plus NI at 2% on earnings over £120,000.

Consequently, while there are clever ways of keeping income below the critical £100,000 level e.g. investing in Sipps (self-invested personal pensions), the first priority is to ensure the correctness of your PAYE tax code and that you have claimed all your personal UK income tax allowances and any additional work-related tax allowances and/or reliefs.

HMRC issue PAYE tax codes on the basis of information they hold. Consequently, it is essential to ensure your PAYE tax code is correct and up to-date, as the lower the PAYE tax code, the more UK income tax is paid. So, be aware of changes to your personal income tax circumstances and, if there have been changes in, say, taxable benefits received eg car benefit, fuel benefit, medical insurance benefit etc or if your modus operandi has changed, perhaps because you now use your own car for work etc, it is important to advise HMRC accordingly. 

Finally, as any overpaid UK income tax arising from incorrect or restricted PAYE tax codes can be reclaimed from as far back as April 6th 2010, let us help you determine if you are among the millions of UK income taxpayers who are entitled to an income tax rebate and claim an income tax repayment for you NOW.