A question we are often asked is: "I have earned more, and paid more tax this year, how come im getting less back than last year?"
The first answer is: The more you earn, the more tax you pay.
The second answer is: Class 4 National Insurance. This is charged at 9% of your net profits over about £8500, and again the more you earn, the more class 4 you need to pay.
Class 4 National Insurance is not deducted from your pay like your tax is, instead its deducted from your rebate. If your rebate does not cover what you owe you will get a bill.
Obviously as you earn more, your expenses will generally rise as well but there will come a point where you just have to pay more tax and National Insurance... unless you're Starbucks, Facebook or Google!
The people that get the biggest rebates are those that earn roughly £14k, they will likely receive a rebate of £2600 - £2400, where as some one earning £24K will likely receive £1600 - £1700. Would you rather earn £10k less to get £800 pound more on your rebate?
Here's the 2018-2019 and 2019-2020 Income Tax rates and bands. Its key to remember that these rates and bands apply to your net profit (after expenses).
|Income Tax Rates||2018-2019||2019-2020|
|Basic rate -- The lowest level if income tax paid above the personal allowance||20% on earnings between £11,851 and £46,350 (you pay tax on £34,500)||20% on earnings between £12,501 and £50,000 (you pay tax on £37,500)|
|Higher rate -- The middle tier of income tax||40% on earnings between £46,351 and £150,000||40% on earnings between £50,001 and £150,000|
|Additional rate -- The top rate of income tax for high earners||45% on earnings above £150,000||45% on earnings above £150,000|