How do the tax bands work?

[Nic jones]

I understand that there are 3 basic tax bands for PAYE.

Under £6000 (ish) p/a = 0% tax
£6000 - £40,000 (ish) p/a = 20% tax
£40,000+ p/a = 40%(?) tax

I may have these numbers completely wrong of course, but the idea is right...

Anyway...

Say for example you earn £25,000 p/a then as I understand it £6,000 is tax free and £19,000 is taxable at 20%... so, does that mean the first £500 earned per month is tax free with the last £1583 being taxed at 20% meaning that the tax is paid at approximately 15% of total annual earnings at that amount?

(Obviously I've neglected NI and student loans)

Sorry if I'm asking a stupid or obvious question, but PAYE all seems like smoke and mirrors to me!

[nomisesor]

See tax bands thread.

[Welshbeef]

Your tax free allowence is spread over the year flat lined then as per the thresholds again flatlined your taxed for each element 20% and then 40% and then 50% plus of course NI.

[Eric Mc]

Nic jones said:

I understand that there are 3 basic tax bands for PAYE.

Under £6000 (ish) p/a = 0% tax - Actually it's £6,475.


£6000 - £40,000 (ish) p/a = 20% tax Actually £6,475 to £43,875


£40,000+ p/a = 40%(?) £43,875 to £150,000 - 40% but you start losing your personal allowances between £100,000 and £150,000

Over £150,000 - 50%



I may have these numbers completely wrong of course, but the idea is right...

Anyway...

Say for example you earn £25,000 p/a then as I understand it £6,000 is tax free and £19,000 is taxable at 20%... so, does that mean the first £500 earned per month is tax free with the last £1583 being taxed at 20% meaning that the tax is paid at approximately 15% of total annual earnings at that amount?

(Obviously I've neglected NI and student loans)

Sorry if I'm asking a stupid or obvious question, but PAYE all seems like smoke and mirrors to me!

[davepen]

Nic jones said:

so, does that mean the first £500 earned per month is tax free with the last £1583 being taxed at 20% meaning that the tax is paid at approximately 15% of total annual earnings at that amount?

I think so, but if you've just graduated and started work , you might have an allowance for the last six months, so the first couple of months may be at a lower effective tax rate.

Tax year starts on April 6th - something to do with Quarter Days, April Fools Day and the change from the Julian calendar. So it depends how much you've earned in the last six months. You may have banked 6 x £500 of allowance. Hence your new employer wanting to see your P45.