Higher tax rate
If the taxable pay is greater than the appointed tax rate limit, tax is increased for the amount over the limit.
Example
David earns \(\pounds49\,000\) in a year. His tax allowance is \(\pounds10\,000\). The tax rate is \(20\%\) up to a taxable pay limit of \(\pounds32\,000\). Above this the tax rate is \(40\%\).
How much tax is David due to pay in a year?
Answer
Taxable pay \(= 49\,000 – 10\,000 = \pounds39\,000\)
\(\pounds32\,000\) of this is taxed at \(20\%\). \(Tax = \pounds6\,400\)
\(\pounds7000\) of this is taxed at \(40\%\). \( Tax = \pounds2\,800\)
Total tax owed\( = 6\,400 + 2\,800 = \pounds9\,200\)
Now try these questions:
Question
Karen earns \(\pounds53\,000\) in a year. Her tax allowance is \(\pounds10\,000\). The tax rate is \(20\%\) up to a taxable pay limit of \(\pounds32\,000\). Above this the tax rate is \(40\%\). How much tax is Karen due to pay in a year?
Taxable pay \(= 53\,000 – 10\,000 = \pounds43\,000\)
\(\pounds32\,000\) of this is taxed at \(20\%\). \( Tax = \pounds6\,400\)
\(\pounds11\,000\) of this is taxed at \(40\%\). \(Tax =\pounds4400\)
Total tax owed \(= 6\,400 + 4\,400 = \pounds10\,800\)
Question
Caroline earns \(\pounds51\,500\) in a year. Her tax allowance is \(\pounds10\,000\). The tax rate is \(20\%\) up to a taxable pay limit of \(\pounds32\,000\). Above this the tax rate is \(40\%\). How much tax is Caroline due to pay each month?
Taxable pay \(= 51\,500 – 10\,000 = \pounds41\,500\)
\(\pounds32\,000\) of this is taxed at \(20\%\). \(Tax = \pounds6\,400\)
\(\pounds9\,500\) of this is taxed at \(40\%\). \( Tax = \pounds3\,800\)
Total tax owed \(= 6\,400 + 3\,800 = \pounds10\,200\)
Tax owed each month\( = 10\,200 \div 12 = \pounds850\)
