The tax band will not cost you money (Image: Getty)
The end of the tax year is rapidly approaching and with it will come bills, tax letters and new PAYE payslip tax codes for those who earned too much or went over certain allowances. But with thoughts turning to tax, many people are only just realising how the £50,270 and the £12,570 bands actually work – and that you won’t lose money if you get paid enough to tip you into a higher tax bracket.
Posting on ‘s UKPersonalFinance, u/dan_fitz21 said: “Will you ever have to pay more overall if you get a promotion that changes your tax bracket, other than the new rate over the old threshold? I’m having a discussion with friends and they are telling me I’m wrong. I’m open to believe this but I don’t understand what is wrong. I said if you earn £50k (20% bracket) and got a promotion, for say, £10k, would you ever have to pay more than the 40% on the extra 10k?
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“So how I understand it, £12,500 tax free, then 20% up to 50k (so roughly £7,500) then 40% on anything past the 50k, so in this case, 10,000 at 40% being £4,000. Totalling £11,50.
“Am I right or wrong? Are there hidden costs? Can it screw you in other ways, besides pension contributions?
“They are all absolutely dead certain that if you get a payrise over a tax bracket that your tax code changes and you pay more in tax.”
User u/nutmegger replied: “You do pay more in tax, but you don’t draw less salary. The only time you’d take away less money (and it wouldn’t be from salary but other benefits) is when you lose access to stuff like Child Benefit at certain thresholds.”
And u/jamesskilbynet added: “In general the payrise will always give you more money. You will pay more tax, NI and student loan but will end up with more money in your bank account. The only exception to this is loss of some benefits for children. This is typically above 100k you can end up in a much worse position earning £100,001 than £99,999.”
User u/SnapHunter replied: “You are correct, it’s only the additional pay above the threshold that gets taxed at the higher rate.
“There are a few edge cases where earning more could result in lesser take home pay, but that’s where you no longer qualify for certain benefits etc. Moving above the student loan threshold might make you pay towards that.”
Money expert has recently
He explained that, even if you’re a pensioner who tips themselves into the tax thresholds with some extra income, you will still be better off overall, even if you have to pay some tax.
On the latest March 4 episode of The Martin Lewis Money Show Live, he said: “Okay, look, tax in this country is marginal. You only pay 20% on the amount above the threshold. The has always been taxable if you have other income, it counts as taxable income. So look, let’s say you add £1,000 a year to what you earn and that £1,000 is above the threshold. Yes it’s taxed so you only get £800 of it.
“But you still get £800 more! Tax is marginal, you always want to earn more, you always receive more if you earn more. You might not get every pound more that you’re being given but you’re still, the more you earn the more you get, so the tax thing, that’s a red herring.”