November 22, 2020

UK Tax Bands & Calculating Tax on Income

UK Tax Bands & Calculating Tax on Income hi I'm Molly and welcome my turn I'll take home pay the whole premise of the channel is designed around keeping more of your hard-earned money for yourself today in our first video, we're going to start at the very beginning so basically where your money comes, from and we're going to talk about UK tax bonds and calculating tax on income it's going to be different for Scottish. People Scottish people have different buns however the premise around the whole thing is exactly the same so firstly let's talk about the touch buns it's a, tiered system which means that everybody pays the same amount of tax depending upon how much they earn if that makes sense and so let.

Me just talk you through it and explain it so firstly you've got. The bun depending upon how much you earn per year depends upon what buns that you fall into then, you've got your taxable income now this is the again depend upon what bond you fall into would affect your taxable income and how much you would.

Pay and then finally you've got the tax rate so the. Bonds firstly you've got your personal allowance and this is up to twelve and a half thousand now everybody who owns an among. Less than twelve and a half thousand paid zero percent tax the next one which is where most people would fall into, is basic rate now basic rate is anything that you were between twelve thousand five hundred up to fifty thousand per year so.

This is where the vast majority of people in the UK fall into and this tax rate is. 20 percent the next one we've got the higher dinners so the higher rate miss th. Out hire a tux and there's anything over 50,000 up to 150,000, now these people who were in this amount wanna pay so anything over 50,000 they then pay 40% tax rate then you've got your mega wedge people who've paid the. Additional rate and this is anything over 150,000 a year and they pay 45% tax so when you get people saying I don't know I'm. A 40% tax payer that. Doesn't mean did they pay 40% on all of their income like I said it's a tiered process so they would pay the same amount up to I, don't know 30 thousand that somebody who weren't 30,000, would but it's when they cross over and in more than 50,000 a year that they then pay 40%. On anything over 50,000 if that makes sense so that's the tax bonding is also unexplained so now what I'm gonna do is take an example of someone who takes 60,000.

A year in an employed position and work out how much. They would take home per month after tax so to figure it out and where they would stand you just quickly need to do some calculations so the first twelve.

And a half thousand is zero percent tax then twelve and a half thousand to fifty. Thousand is thirty seven and a half thousand so the next thirty seven and a half thousand. They would then pay twenty percent tax on that amount should they earn more than that the next hundred thousand pounds a year would be paid a 40% tax and then anything, over this amount they automatically pay forty five percent tax on the part over that amount so let's look at somebody who's.

At a higher rate tax pay just to make them after that more confusing so, for example somebody who in 60,000 a year so the first thing you would do would be – off the 12 and a, half if I wasn't is that's the allowance that. They're allowed and that's a monthly wouldn't things you wrote percent tax on so that leaves them with forty seven and a half thousand I left over now we know from our tax. Table here that the next thirty seven and a half thousand they're gonna pay it a. Twenty percent tax rate so 37500 we already know is gonna be twenty percent tax and.

That leaves us with ten thousand left and we know that that next we know that that remaining ten thousand goes into the forty percent band so. 40 percent of ten thousand so quickly do the maths tax on that it's a four thousand. And the tax on that is. Seven and a half thousand add them together and that comes out as eleven thousand five hundred so the. Total tax somebody would pay per year earning sixty thousand pounds would be eleven thousand five hundred now that we know their tax. Amount is eleven thousand five hundred we can – up from the sixty thousand which brings you to forty eight thousand five hundred pounds and then. Divide.

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