Fast, effortless and 100% online.
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 2023/24 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 👇
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 2023/24 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.
Well, the basic National Insurance rate for Class 1 payments (which you pay if you’re employed) is 12% 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) will no longer need to file a tax return unless:
You must register online for Self Assessment before the 5th of October, and then file and pay any tax you might owe before the 31st of January in any given tax year.
Finally, if you’re a high earner with an income under £150,000, then make sure to contact HMRC to ensure you’re on the correct tax code!
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.
Nobody likes pop quizzes, but you’ll love this one. Test your high-earner knowledge and check if you really are a tax genius. 🤩
Sign up for important updates, deadline reminders and basic tax hacks sent straight to your inbox.
"*" indicates required fields