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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:184
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:1558
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


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