Which tax band do you fall into and what this means
Which tax band do you fall into and what this means
If you're uncertain about which tax band you fall into for your income, you could be surprised at the amount being deducted from your earnings, or you could even be paying more than you need to without realising it. That's why it's important to learn how tax bands are calculated, and to find out where you fall on the scale.
Almost everything we earn is liable to tax, whether this is deducted from your monthly salary by your employer on behalf of the government - known as PAYE (Pay As You Earn) - or paid at the end of the tax year through self-assessment, if you are self-employed or earning from investments. If you are earning below a certain amount, you may not even have to pay any tax.
You can calculate your income tax at home, but before you do so, you should be sure to deduct all non-taxed components. These include pension contributions, which are taxed separately, payments into Permanent Health Benefit Schemes, work expenses and any tax allowances you receive.
Your tax band thus applies to your income after tax allowances and reliefs have been taken into account. If you're worried that you might be paying too much tax for your earnings, you should contact your employer or the tax office immediately and let them know. The same applies if you feel you are not being charged enough tax, as this could mean higher charges in the future.
If you're looking to reduce the amount of tax you pay on your income, there are a number of options that can lead to greater tax efficiencies for your earnings. These include working abroad, where you could enjoy a comparably lower rate of income tax - especially in countries that offer tax discounts for foreign contractors, such as the Netherlands. However, you should always consult with financial advisors to make sure you are complying with local and international tax legislation.
Moving to a higher salary could also lead to a disproportionate increase in the amount of tax you will be required to pay, which could even mean in some cases that you would be earning more in your previous position than by accepting a promotion or transfer.
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