Earning less to make more (tax)?

Question

As I understand if you earn 35k+ you're in the 40% tax band.

So say if someone earned 34,999 a year. but was given a pay rise of a couple grand.

Would it make sense to stick with the 34,999 a year rather then e.g 37k?

Answer 1

No, because you only pay 40% on the amount over 35k, not on the whole amount.

Answer 2

not really. even if your on 37K with a higher tax band you are still going to be earning more than 34999 surely?

Answer 3

No.  You need to research what tax bands really mean and how they work.

Answer 4

You do not understand the tax rates. I'm constantly amazed how many people don't understand this, but you cannot EVER have less money after earning more. It just doesn't work that way.

Those are MARGINAL tax rates. That means each of the tax bands only applies to your extra income.

So, while you'd pay a higher rate on the amount OVER $34,999, you still pay the lower rate for the income below it.  

The upshot is that, if you earn more money and enter a higher bracket, you do indeed get less of THAT money, but overall, you're still making more.

Answer 5

no, you still keep 60% of your pay rise.

Answer 6

Yeah, I would decline the pay rise, or have it transfered as a 'bonus' at the end of the year.  Otherwise you'll be taking home less than you started with!  However, I think you can get registered VAT free if you earn over a certain amount (not sure what, I have a feeling its in the £60k or over though) and that would mean that although you are on the highest tax band you get money back on everything charged with VAT - like fuel, clothes, machinery, cars etc