This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

Help - new job offer salary + tax confusion

Mikster
Posts:1
Joined:Thu Jun 10, 2021 8:32 pm
Help - new job offer salary + tax confusion

Postby Mikster » Thu Jun 10, 2021 8:36 pm

Hello

I’ve been offered a job £45k + £5k car allowance. I want (and I’m sure is expected) to negotiate a salary more than £45k but will I be shooting myself in the foot in terms of the tax threshold? If I leave it as is, I’ll be taxed 20%. If I negotiate say £48k + £5k car allowance will I be taxed 40% and actually be worse off? Apologies if stupid question, I’ve tried to research it and I am still confused!

Thanks in advance!

Jholm
Posts:360
Joined:Mon Mar 11, 2019 4:22 pm

Re: Help - new job offer salary + tax confusion

Postby Jholm » Fri Jun 11, 2021 10:24 am

Yes, earning over £50k will stand to expose you to higher-rate tax but only on the amount that exceeds the threshold. It doesn't mean you pay 40% on everything!

You'd be shooting yourself in the foot turning down higher pay...

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: Help - new job offer salary + tax confusion

Postby Lambs » Fri Jun 11, 2021 10:33 am

M,

You will NOT be worse off because higher rates of tax apply only to the extent that income exceeds the relevant thresholds - typically, in your case, the £50,270 point ABOVE which Income Tax rises from 20% to 40% - but ONLY on the amount above £50,270.

To put things in perspective, someone with no other income, (or pension contributions or similar allowances)

In receipt of £45k salary + £5k "car allowance" (which is just additional salary in the vast majority of cases) will have:

Total income of £50,000 costs £7,500 Income Tax and £5,700 Employees' NICs leaving them with £36,800 after tax and NICs

Total income of £53,000 costs £8,650 Income Tax and £6,100 Employees' NICs, leaving them with £38,250 after tax and NICs

The other thing you have to be careful about, though, is if you / your partner/spouse/civil partner have children for whom either of you claims Child Benefit: it starts to be clawed back once someone's "adjusted income" exceeds £50,000 and is always assessed on the partner/spouse, etc., with the higher income (so it would not be relevant to you if you don't have children, or if your partner/spouse already earns, say, £67k - or even just £1 more than you will).

Even then, however, it is an EFFECTIVE higher rate of tax but only on the amount above £50k.

Things can become more complicated if you are offered a taxable benefit in kind as an alternative to cash, and/or if you pay into a qualifying pension scheme (pension contributions will help to save tax but it can make the calculation more complex).

I hope this is helpful.

With regards,

Lambs


Return to “Income Tax”