What am I doing wrong - Income Tax Calculation

[paulrockliffe]

Salary of £38,500 (not mine) should be (£8105 * 0%) + (£26,265 * 20%) + (£4,130 * 40%) = £6905 income tax due.

But all the online calculators give a total for Income Tax of £6,079, they don't show their working out.

What am I doing wrong?

[Deva Link]

paulrockliffe said:

Salary of £38,500 (not mine) should be (£8105 * 0%) + (£26,265 * 20%) + (£4,130 * 40%) = £6905 income tax due.

But all the online calculators give a total for Income Tax of £6,079, they don't show their working out.

What am I doing wrong?

It's 20% of £0-£34,370 TAXABLE income. Zero starts at £8106.

[Eric Mc]

Or, more simply -

1st £8,105 @ 0% = £ Nil
Balance of £30,395 @ 20% = £6,079.00

A salary of £38,500 is not high enough to put you in the higher rate tax band.

[paulrockliffe]

What's the £34,371 figure then chaps?

If I look here:

http://www.hmrc.gov.uk/rates/it.htm/

It says:

"Higher rate: 40% - £34,371-£150,000"

That's the figure I've been using. Is it that you subtract the personal allowance, then apply the rates to what's left?

Any idea why it's done that way rather than my way (with higher allowances), seems unnecessarily complicated?

[Deva Link]

paulrockliffe said:

Is it that you subtract the personal allowance, then apply the rates to what's left?

Yes. Hence I wrote TAXABLE income.

Your personal allowance, £8105 in this case, isn't taxable so isn't part of your taxable income.


I suppose it's done like that as the tax free amount varies depending on people's circumstances. It could even be negative, so the zero point I mentioned could start at a minus number.

[Eric Mc]

paulrockliffe said:

What's the £34,371 figure then chaps?

If I look here:

http://www.hmrc.gov.uk/rates/it.htm/

It says:

"Higher rate: 40% - £34,371-£150,000"

That's the figure I've been using. Is it that you subtract the personal allowance, then apply the rates to what's left?

Any idea why it's done that way rather than my way (with higher allowances), seems unnecessarily complicated?

It has always been done the way we have demonstrated.

You allocate your first segment of income against the personal allowances.

What's left over is then allocated to the various tax bands. It is eminently sensible and not complicated at all (for a change).

A person's tax free allowances can vary depending on their personal situation. The standard personal allowance for £8,105 but that can be increased if a person has additional allowances they can claim for and it can be reduced if they have (say) taxable Benefits in Kind - such as a company car or private medical insurance paid by their employer.