Mechanics of personal allowance taper after £100k

[Jonny_]

This tax year I've crept into the £100k earnings bracket. This has come as a result of working a lot more overtime than usual and so should be a one-off.

My current knowledge of the tax system is crap as I've always been on PAYE, hence what you may think is a stupid question!

I've just had a letter from HMRC to say that my personal allowance for next tax year is zero. Is this how it normally works? I thought you had to hit £125k before personal allowance actually reaches zero (I don't expect to reach £125k, might get close to £120k) and that the tapering began after £100k.

But, much to my dismay, I've also discovered that passing £100k automatically drags me into the murky world of self assessment, despite being paid via PAYE. So do I need to start working out and setting aside the additional tax as a result of the taper, and then pay that amount via the self assessment process?

[FriedMarsBar]

I'd login to HMRC and find the tax code section and check if they've got your salary correct as this is what they've based your tax code on.

There's a section to change it to be more accurate.

[SunsetZed]

The self assessment for PAYE over 100k is actually pretty straightforward and not as bad as you might imagine. You might want to look at the "Keeping Net Adjusted Income under 100k" thread as well for ideas on how to maximise the value of that extra 20k as the tax rate on it is about 60%!

[Jonny_]

Thanks both. Will check the correct salary (presumably this should be my basic, exclusive of OT other non guaranteed payments?) with HMRC, and also do need to set up a couple of big AVCs into my pension for the remaining couple of pay days this tax year.

[okgo]

Self Assessment for £150k and more now isn’t it?

Either way given your likely simple tax affairs if a straight employer without significant external income/unsheltered investment it would take about ten minutes.

[Zigster]

I agree with others: self assessment isn’t too tricky for most people.

Get your P60, a P11D (if applicable), interest on taxable bank accounts, details of any charity donations. I think that’s about it. Takes 30 mins to complete.

You do need to register for self-assessment. Best to do that bit now so you are ready to go when you get around to your tax return.

[okgo]

He doesn’t need to. It’s £150k this tax year according to Telegraph and then potentially scrapped from April altogether.

[markh1973]

okgo said:

He doesn’t need to. It’s £150k this tax year according to Telegraph and then potentially scrapped from April altogether.

Although given that my employer got my PAYE tax wrong by a substantial amount he'll want to check that he has paid the right amount of tax.

[myfirstcar1]

with the current tax system (I've used approx numbers to keep it easy to follow)

first 50k ( the 50k mentioned includes 12.5k tax free personal allowance so taxable is about £37.5k) is lower rate tax

50k to 100k higher rate 40%

THEN

when you get to 100k its still higher rate BUT you lose £1 personal allowance for every £2 you earn eg earn £125k and you have £0 tax free personal allowance.

earn £110k and you lose £5k tax free personal allowance

SO this effectively makes it a 60% tax band,

then 125k and above its additional higher rate which is 45%

you can mitigate this by making pension contributions to bring the income down to £100k

[FriedMarsBar]

Jonny_ said:

Thanks both. Will check the correct salary (presumably this should be my basic, exclusive of OT other non guaranteed payments?) with HMRC, and also do need to set up a couple of big AVCs into my pension for the remaining couple of pay days this tax year.

If employer's AVCs system isn't flexible enough you normally send the pension company funds. It will basic tax relief added and the rest you can put on on your self assessment.

[xyz123]

okgo said:

He doesn’t need to. It’s £150k this tax year according to Telegraph and then potentially scrapped from April altogether.

That's not correct. Over £100k self assessment is mandatory.

https://www.gov.uk/income-tax-rates/income-over-10...


IP-As others have said its straightforward for simple situations like your described. Make sure you are registered, setup MFA etc and you are good to go.

[okgo]

xyz123 said:

That's not correct. Over £100k self assessment is mandatory.

https://www.gov.uk/income-tax-rates/income-over-10...


IP-As others have said its straightforward for simple situations like your described. Make sure you are registered, setup MFA etc and you are good to go.

It is correct, google it. It’s everywhere.

https://www.gov.uk/government/publications/agent-u... - about half way down this page also.

[Jonny_]

All sorted I think.

Spoke to HMRC this morning, it's an ordeal actually getting through to anyone but (after one false start and a total of about an hour in queues, thank f**k for speakerphone...) I eventually spoke to an unexpectedly helpful chap who told me they'd estimated my income for next tax year at just over £125k, hence the zero personal allowance. Corrected them on that count as i don't expect to get anywhere near that amount!

Thankfully, self assessment was confirmed as definitely not required until £150k. My tax code will be adjusted to recover the additional tax over the next 12 months, which is fine by me.

(Note that HMRC's own website still states the old £100k threshold for self assessment, rather than the current £150k, but they issued an agent update which states the new threshold that applies from 23-24 tax year)

This will put me on something like a 280 code until April 2025, rather than the previous 1257. Think I'll be taking a lot of time off in lieu during the summer next tax year rather than claiming all the overtime.

I've also set up an AVC to shuffle a decent chunk of money off into my pension in my Feb pay, and will do the same again for March, would be silly not to!

Thanks for all the input, appreciate it.

Edited by Jonny_ on Monday 5th February 13:22

[djc206]

You might not need to do a tax return but if you have any professional subscriptions or give a little bit to charity it might be worth doing it anyway.

[Eric Mc]

Jonny_ said:

All sorted I think.

Spoke to HMRC this morning, it's an ordeal actually getting through to anyone but (after one false start and a total of about an hour in queues, thank f**k for speakerphone...) I eventually spoke to an unexpectedly helpful chap who told me they'd estimated my income for next tax year at just over £125k, hence the zero personal allowance. Corrected them on that count as i don't expect to get anywhere near that amount!

Thankfully, self assessment was confirmed as definitely not required until £150k. My tax code will be adjusted to recover the additional tax over the next 12 months, which is fine by me.

(Note that HMRC's own website still states the old £100k threshold for self assessment, rather than the current £150k, but they issued an agent update which states the new threshold that applies from 23-24 tax year)

This will put me on something like a 280 code until April 2025, rather than the previous 1257. Think I'll be taking a lot of time off in lieu during the summer next tax year rather than claiming all the overtime.

I've also set up an AVC to shuffle a decent chunk of money off into my pension in my Feb pay, and will do the same again for March, would be silly not to!

Thanks for all the input, appreciate it.

Edited by Jonny_ on Monday 5th February 13:22

One of the big problems with the PAYE system is that HMRC has to try to predict what your income will be for the NEXT tax year so that they can GUESS whther they need to play silly buggers with your tax code. They don't ever REALLY get it right because they are only human and do not have special powers that allow them to predict the future.

Taxpayers need to be on the ball regarding this serious flaw in how PAYE works and be proactive in sorting out incorrect guesses by HMRC.

[djc206]

Eric Mc said:

One of the big problems with the PAYE system is that HMRC has to try to predict what your income will be for the NEXT tax year so that they can GUESS whther they need to play silly buggers with your tax code. They don't ever REALLY get it right because they are only human and do not have special powers that allow them to predict the future.

Taxpayers need to be on the ball regarding this serious flaw in how PAYE works and be proactive in sorting out incorrect guesses by HMRC.

Absolutely. It can be done via the app in seconds.

[supersport]

Couldn't agree more.

Use the app to correctly set the expected income.

I would much rather file a self assessment. I feel more in control of my tax now that I do, rather than always owing them something and my code moving around.

PAYE always seems to be wrong, and this year is going to be no different, so at least with SA it gets fixed at the end of the tax year rather than waiting for years for it to finally work itself out, seemingly without you really knowing if it is right or not.

[Funk]

I've been able to get around this with my work agreeing to cap my gross income at £99.5k this year and defer commission and bonus that would take me past the £100k mark (I'm probably only going to be around £110-115k) so it's easier to just move that into April rather than faffing about with pension etc.

Edited by Funk on Wednesday 7th February 18:04

[macron]

Funk said:

I've been able to get around this with worth agreeing to cap my gross income at £99.5k this year and defer commission and bonus that would take me past the £100k mark (I'm probably only going to be around £110-115k) so it's easier to just move that into April rather than faffing about with pension etc.

Edited by Funk on Monday 5th February 14:45

And just punt the issue into the next tax year?

Which app are people talking about by the way, "the app" is not overly helpful!

[okgo]

I’d have a guess that it may be the HMRC app. Wild idea I know