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Do you have an income of nearly £100,000 a year? If so, there’s some important stuff to know before you reach that luxury salary bracket.
If you didn’t know already, there are some big differences between earning a five-figure income versus a six-figure one. Knowing what these differences are is crucial when it comes to taxes.
So, if you plan on earning more than £100,000 in the future, here’s everything you need to know ahead of time about tax.
After all, preparation is key, right? 😉
Let’s start by looking at what you’ll pay in tax on your current income.
For the 2024/25 tax year, if you earn more than £50,270, but less than £125,140, you’ll pay income tax at a higher rate – this is what’s known as the 40% tax bracket.
The basic income tax rate is currently 20%. This is the percentage you’ll be taxed on any income you make between £12,570 and £50,270.
As we explained above, this tax rate increases to 40% for earnings above £50,270 and stops at £125,140.
Still confused? Don’t be – we’ll explain in further detail 👇
Yes!
If you earn under £100k you’ll still benefit from the Personal Allowance. This is the amount of tax-free income you’re entitled to receive each year, which is currently £12,570 for the 2024/25 tax year. But you can only claim this in full if you earn less than £100,000.
Your National Insurance payments will be higher if you are in the 40% tax bracket.
Why?
Well, the basic National Insurance rate for Class 1 payments (which you pay if you’re employed) is 8% for anyone who earns more than £242 per week.
If you’re nearly earning £100K, you’re in the higher rate tax bracket – and this means you’ll have to pay 2% on your earnings over £967 per week.
Firstly, congrats on your six-figure salary!
Whether it was for a promotion, a big commission on your sales, or a yearly bonus as a reward for your hard work, it should be a reason to celebrate.
And it would be if you weren’t now paying a higher tax rate than anyone else in the UK! 😳
Yes, sorry to be the bearer of bad news, but once you start earning more than £100,000 everything around tax changes.
Remember your Personal Allowance? That £12,570 chunk of income that HMRC lets you have tax-free? Well, that is reduced by £1 for every £2 you earn over £100,000. And once your income reaches £125,140, your Personal Allowance drops to £0.
In other words, your tax rate for any income you make between £100,000 and £125,140 essentially becomes 60% – yikes!
Read more about this tax trap here.
No, not yet!
Thought tax returns were just for the self-employed? Well, you’re wrong!
When you earn over £100k, you’ll be classed as a high earner in the eyes of HMRC. Until recently, this meant that you needed to register for Self Assessment and complete a tax return so that HRMC could check that you were being taxed the correct amount.
But, on April 6th 2023, things changed.
Anyone earning over £100K from the 2023/24 tax year (6th April 2023 – 5th April 2024) no longer needs to file a tax return unless you need to file a tax return for another reason (e.g. property, CGT, self-employed). In 2023/24, the PAYE threshold to file was increased to £150,000+ per year. But from the 2024/25 tax year, the need for PAYE high earners to file at all was abolished.
Woohoo!
Well, kind of. If you’re a high earner with an income over £100,000, it’s still worth checking in with HMRC that you’re on the correct tax code. If you’re not, they’ll collect any tax underpayments from your salary.
Paying UK tax as a high earner might sound pretty confusing – especially if you’ve only just started earning more than £100k – but it doesn’t have to be complicated at all! If you have a tax-based problem, get in touch with us for some simple, one-off tax advice from our accredited accountants. Learn more here.
Or see our Guides, Calculators or Taxopedia
