UK workers urged to avoid 60% HMRC income tax | U.Ok.Finance News
UK workers face dropping hundreds of kilos to tax thanks to a quirk of the HMRC Income Tax guidelines until they take motion by this Saturday. As the tip of the tax yr nears, UK households have simply days left to type out their tax scenario and avoid a huge tax lure which might see you paying an efficient 60% tax charge in your income for this tax yr, ending on April 5.The new tax yr begins on Sunday, April 6, which implies households who need to deliver their taxable wage under the magical £99,999 barrier to avoid an efficient 60% tax charge have solely days left to do it. If you do earn over £99,999, HMRC might change your tax code and reclaim any underpaid tax for this yr from subsequent week.Most people are conscious that income tax is paid at both 20%, 40% or 45% in England and Wales (although the charges are completely different in Scotland), however there may be a particular set of circumstances which might see you lose 60% of your income to tax which the federal government nonetheless hasn’t fixed and can nonetheless be in place when the new tax yr begins in April, too. Dubbed a ‘stealth tax’, the 60% tax lure is as a result of of a quirk within the Personal Allowance system.Everyone begins off with a Personal Allowance of £12,570, the quantity you possibly can earn tax-free with out paying tax on it. For instance, when you earn £20,000 in a yr, you don’t pay 20% tax on that quantity, you pay 20% tax on £7,230, or roughly £1,460 in tax. That’s as a result of there’s no tax to pay on the primary £12,570 you earn, then 20% on the remaining, up to £50,270 if you pay 40% over that quantity, and so forth.But those that earn £100,000 or more will begin to lose their Personal Allowance. This tax-free quantity is ‘tapered off’ for high earners. For each £2 you earn over £100,000, you lose £1 of your Personal Allowance.On high of this, an additional 2% National Insurance takes even more money away.As tax specialists SJP clarify: “In real terms, this means that for every £100 of income between £100,000 and £125,140, £40 is deducted in Income tax, while another £20 is lost by the tapering of the personal allowance. You will also pay Employee National insurance at 2% on the income. This amounts to a 60% tax rate, plus National insurance. Once you’re earning £125,140 or more, you don’t get any personal allowance at all. It feels like a double jeopardy.”But there may be nonetheless time to avoid the 60% tax charge when you act earlier than April 5, the final day of the present tax yr, and take steps to cut your tax invoice.They added: “One of the quickest and simplest ways to bring your taxable income below the threshold is to pay more into your pension before tax year-end. This is a win-win, since you reduce your tax bill and boost your retirement fund at the same time.“Here’s an example. You get a £1,000 pay rise or bonus, which takes your taxable income to £101,000. If you pay that £1,000 into your pension, you won’t enter the 60% tax zone and you’ll get the benefit of a 40% top-up on your contribution, thanks to pension tax relief.”
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