how does higher rate tax work?

[TinyDiamond]

do has just got a new job (hurrah) and the salary is 40k plus a 5 k car allowance. he has chosen a cheap car so can have the rest of the money in pay packet. will he be taxed high rate on everything over the 40 or all of it? I don't understand. thanks

The current higher rate tax bracket starts at £42475 - everything over that amount will be taxed at 40% (until you get to the really high earners at £150000!). It will go down to £41450 from 6 April 2013
I'm not sure how the car allowance works but if it is being paid to your DH so that he can personally lease a car, it's just part of his salary so will be taxed on it. If the employer leases the car, he will get taxed on the tax value of the car.

thanks, it is a personal lease so then I'm guessing his income is 45k but he will only pay 40% on 4k of that?

well, 3.5k

Yes, it's just the amount over £42k that is at 40%
There are online calculators that tell you how much tax and NI you will pay. Here www.mranchovy.com/calc/
However this assumes £45k salary for whole tax year so might be slightly better off if earned under £42k threshold in previous job

His car (or any cash company contributions to the lease cost, insurance etc) together with any other benefits of employment should to be taken into account and declared as part of his package. The taxable value of any benefits will be deducted from his personal allowance and this will all be distilled down into a PAYE tax code. This goes on to affect the proportion of his income which is tax free and which is taxed at 40%. NI is separate.

If you're trying to find out his net income so that you can budget, it's probably worth him talking to his payroll team and getting an estimate of his monthly take-home.

Yes before his total salary was 35k.
He just started this week and yes we are trying to budget, saving for our wedding.
Do annual bonuses count as your salary too? I'm guessing yes as you're taxed on it but I'm thinking that this then will put him above 50k therefore having child benefit implications.
But how can I calculate this if you don't know how much bonus will be? Itwont be paid until June/July

Yes bonuses are part of total income. But they are taxed when made available, which is usually when received. So any bonus will be taxed in 2013/14 tax year if paud after 5th April.

Ok thankyou. So if we were to carry on claiming cb as normal then reassess April 2014 do you think that would be ok or would somebody get in touch with us before that?

If his total income is getting up past the £50k threshold, he's changed jobs recently and he has complications like bonuses and lease cars then I'd suggest he registers for self-assessment now and fills out a return in the summer for 2012/13 tax year. Get in practise! If his 2013/14 income is £50k+ (including the bonuses) and you carry on claiming CB he will have to self-assess anyway. If it's borderline £50k, it's worth looking at increasing pension contributions a little so that you can be sure of retaining the CB payments.

BTW... if the top end of his income is taxed at 40% all his bonus will be taxed at 40%. That's what happens to me and it always takes some of the shine off it. Be prepared.

thanks! do you want to know the irony of this whole situation? he's a qualified accountant! doesn't work as one though that isn't what the job is. neither of us understand how to work this out.

I think it would be sensible for me to carry on claiming cb as I do work but my income is 7.5k, therefore I don't pay tax at the moment. am I right in thinking this is the correct thing to do?

just a thought, does the 8k personal allowance apply to him too?

Everyone gets the same basic personal allowance.

Carry on claiming as you will be on the threashold, but you may need to pay some back next year.