Unpaid leave and the 40% tax bracket!

[Jinkster]

Taking a month unpaid leave may drop you out of the 40% tax bracket if your just over the threshold.

Say e.g:

UK Tax Bracket of 40% = £37,400 + per month
Basic Salary = £40,260 before tax
Average basic pay per month = £3420 before tax

£40,260 - £3420 = £36,840 i.e below the £37400 spread out over the 12months.

Or am I completely mad, drank too much coffee, had too much cosmetic radiation and insane?

Opinions Please!

[mbcxharm]

It's a bit of a common misconception (and I apologise if this is not the case and if I've got the wrong end of the stick about what you're asking) that if your earnings are above the 40% tax threshold then that means that you pay 40% tax on your entire salary.

You only pay 40% tax on the part of your salary over the threshold, so you actually pay the following:

0% on the first £6475 (+ £950 if you claim your FREA!)
20% on the NEXT £37400 (so actually the 40% bracket doesn't start until you're earning £37400 + £6475 = £43875)
40% on everything after that...

So, what I'm saying is, that by manipulating your salary so that the yearly total lies below the 40% threshold doesn't mean that yo're suddenly only gonna pay 20% tax on your whole salary instead of 40%...

[Bealzebub]

Under PAYE, your tax deductions are also adjusted monthly to reflect a 1/12 portion of your taxable annual salary. This is then adjusted to refect any adjustments (such as bonuses or overtime) on a month to month basis. This means that your Tax and NIC contributions should be correct on a month to month basis, smoothed out to reflect those proportions of your annual salary that are affected by higher rates. In other words the annual salary and the personal allowance are also divided by 12 so that the applicable tax rates are deducted each month based on the projected annual salary. As a higher rate tax payer, any amounts you earned in excess of these projections would be fully taxed at the applicable higher rate.

If you take a months unpaid leave that would result in your annual salary falling below the higher rate threshold then the adjustment to your tax deduction would normally occur automatically in the next pay statement. In other words you might still receive some payment even though you received no salary that month.

Any corrections not accounted for through the PAYE system would result in an overpayment (or underpayment) of tax that could either be paid to, or collected from you directly, or could in some cases be carried through as an adjustment to the next fiscal years tax coding. For this reason the sums involved are not likely to be substantial.

[Re-Heat]

It is known as the 40% marginal tax bracket, as it applies to the marginal income abovet the 40% rate, not the full income.

[Need money]

Tax

<Delete>

Realized I kind of repeated Bealzebub explanation on a second read through....

[zerotohero]

Can someone confirm 100% the taxable amounts, I had slightly different from a wedsite so might be useing old figures

thought it was £5035 tax free before paying anything then so forth.
also what is FREA and where can I find a link to that

[Jackdaw]

£6475 personal allowance in 2009-10. Use the official site - hmrc would never lie would they?
HM Revenue & Customs: Rates and Allowances - Income Tax