Monthly Archives: April 2018

High Earners, Paying Tax, Tax Rates

How Much do I Need to Earn to Pay 40% Tax?

Leave a comment

How much do I need to earn to pay 40% tax?Currently the higher rate of tax for those who earn a certain amount stands at 40%. So you may wonder how much do I need to earn to pay 40% tax?

Tax Code

The way to work out this is to firstly take a note of your tax code which will dictate how much personal allowance you have for that tax year. For the year 2018/19 the standard personal allowance is £11,850 which will give you a tax code of 1185L.

If you don’t have that tax code then you need to take the tax code you have and multiply it by 10 to give you your personal allowance.

20% Tax Band

Next add on to that figure the amount that you can earn on which you pay 20% tax. You can see the current rates for the relevant tax years here, but for 2018/19 the 20% tax band amounts to £34,500.

So you add your personal allowance (let’s say you get the full rate of £11,850) to the 20% tax band (£34,500) and you get a total figure of £46,350.

This means that once your earnings are over £46,350 for the tax year (in this example 2018/19) then you will start paying tax on those earnings at the rate of 40%.

Note that you only pay tax at 40% on earning over that figure, not on the whole amount.

Additional Tax Rate

In addition to that there is a 45% tax rate on earnings over £150,000 (at which point you don’t get a personal allowance) so that would be the point at which you would start paying tax at what is know as the additional rate.

Obviously everyone’s circumstances are different and you should also take account of other benefits in kind and additional earnings.

This is just to give you a guide number of when to think about your entry into a higher tax bracket and what that could mean to you.

It may be worth speaking to a financial adviser to get any advice you need to take account of this additional tax rate.

Tax Codes

What Does Tax Code BR Mean?

6 Comments

BR tax codeIf you have been given a tax code notice and you are wondering ‘what does tax code BR mean?’ then here is an explanation.

The tax code letter BR stands for Basic Rate. This means that any earnings that you get under the employment (or pension) that has that tax code (and you may have different tax codes for different sources of income), will be subject to tax at the basic rate.

For the tax year 2018/19 the basic rate of tax is 20%.

Tax codes often have a number before them and then a letter but in this instance, as the number refers to how much personal allowance you have, there is no number, just the letters BR.

Normally you will be given a personal allowance (£11,850 for 2018/19) which means that you can earn that amount of money over the tax year without being charged tax on it.

So, with a tax code of BR, that personal allowance will not be applied to the earnings from that source. It may well be that your personal allowance has been used up elsewhere (another job for instance or another pension source) so you cannot also apply it to this source of income.

So if for example you earn £1600 in a month then you will be taxed £320 (20% of £1600) for that month.

In fact even if you earn enough that your earnings would normally be taxed at a higher rate then you will still be taxed at 20% on this tax code and any adjustments will either need to be made once the tax code is changed or through your tax return.

The tax code BR differs from the code 0T in that if you are on 0T you will be charged higher rate tax if your earnings enter into that bracket.

It is possible that you have been given this tax code incorrectly (if you have been given it and you don’t have any other source of income for example). In which case you should get in contact with HMRC as soon as possible so that you don’t end up paying too much tax.

You can call HMRC on 0300 200 3300.