Higher threshold 40%-Any accountants here?

[Skyscrapper]

Hi guys,

Basically, just looking for some reassurance.

New job started in Jan 25, earning £45.000/yr.

There's loads of overtime available (paid at standard rate).

As per my calculations, I can work extra 25 hrs/mnth consistently and won't reach the high tax threshold at 40%? I think?

Monthly deductions :
The usual
PAYE
NI
student loan (after 2012) + £15 healthcare scheme. No pension.

Am I right with my calculations? I do need extra money but I'm not comfortable with paying 40% tax at ANY level of my earnings. It is absurd I'll work so hard be it for 1 hr for 40% to be taken off.

Would appreciate your guidance. Many thanks.

Higher rate threshold is £50k. So you can earn another £5k in the tax year before you hit the 40% bracket. You’ll pay student loan on your overtime though.

You realise you only pay 40% on your earnings over the threshold, not your entire salary? You’ll still be better off earning more. You’ll have your personal allowance, then standard rate tax (20%) up to £50,270, then the amount you earn above that is taxed at 40%.

Are you aware of the changes in national insurance rates?
when you pay 20% tax you are also paying 8% NI.
when you pay 40% tax you are also paying 2% NI.
so the jump in tax is from 28% to 42% for earnings over £50k.
from what you’ve said I assume you’re also aware that you only pay the higher rates on earnings over the threshold so you wouldn’t be worse off paying 40% tax (I appreciate it’s painful seeing that much tax being paid however!)

PP is correct that you can earn another £5k before going into next bracket. The only other thing to consider is the healthcare you mention, if your employer is covering any of that cost that that’s a taxable benefit.

The easiest way to increase hours and avoid tax is to pay into a pension, as pension contributions are tax deductible.

How are there no pension contributions to factor in?

Another one questioning the lack of a pension. Its quite a good place to be in if you can stay just below the 40% threshold by paying in any earnings above that amount into a pension as its topped up by 40% tax relief (if you do a tax return).

Is the health care scheme a taxable benefit as if so that will affect your calculations.

Thank you all for your replies, really appreciated.

I see that paying the extra into a pension is the only way 🤔

If the overtime is available you should do enough of it to start putting at least £400 pm into a pension (anything that gets put into pension gets ignored for the 40% threshold) it's sensible enough to try to stay under the threshold but don't worry about being exact - if you earn £10 over the threshold in a year, you'll only pay an extra £4 in tax or approx 1p per day, so you'll still be £6 better off than if you managed to accurately his the threshold spot-on.

Unless you are in Scotland! 40% starts at approx £42k I think?

definitely pay into pension if it looks like you are going over the 40% limit. It’s a no brainer.

^ this

BTW - it is v unusual there is no pension scheme, is it a tiny company? Legally companies are required to offer a pension, I am wondering if your company is exempt due to size

To put any earnings above 50K into a pension and get 40pc back, you need to request 'salary sacrifice'. If you just add to a personal pension you will get tax relief of 20% and then need to reclaim the additional 20pc, it is not automatic

totally agree with your feelings re the 20pc/40pc cliff edge - which hasn't changed in years

Pension is the main way, or you could also make charitable donations if you prefer

Not a small company at all. I just chose to opt out the pension scheme because it's nearly £200/mnth off my salary. Not that I'm being shortsighted; I am saving hard to open my own business and every little helps. Then I'd opt in.

Considering all the answers, I am definitely limited on how much OT I can do, no more than £400/mnth.
And need to reconsider pension for sure.
Sigh... If only... Then I'd start my business a lot sooner. Anyway, it is what it is. Thank you all for your answers. Really appreciated 💗