On self-assessment day, it feels to many business owners like the taxman is taking far more than they should for what they get back from the government. However, for many business owners and employees alike, you may find that you are actually parting with more of your money than you need to be.

In this article, the Panthera team will explain how much tax you should be paying, how the amount you earn affects your Personal Allowance, and what to do if HMRC owe you money.

A brief recap of the income tax bands

Before we get started on what to do if you discover that you have paid too much tax, here is a quick summary of the income tax brackets for the 2018/29 tax year:

Band	Taxable income	Tax rate
Personal Allowance	Up to £11,850	0%
Basic rate	£11,851 to £46,350	20%
Higher rate	£46,351 to £150,000	40%
Additional rate	over £150,000	45%

It is always helpful to keep these rates in the back of your mind, especially if you are close to falling into a higher tax bracket. There are many ways that you can structure your financial affairs to reduce the amount of tax you have to pay overall – ask us for help on this especially if you’re the director and shareholder in a limited company.

When your income is over £100,000

You do not get a personal allowance if your income exceeds £123,700. This is because, for every £2 that you earn over £100,000, your personal allowance is reduced by £1.

This actually increases the amount of tax you will need to pay between the amounts of £100,000 and £123,700. So, you will start by paying the higher rate amount of 40%, but the £11,850 you were previously entitled to (your personal allowance) is now taxed at the basic rate of 20%. This creates what is essentially an invisible tax bracket between £100,000 and £123,700 where you are taxed at 60%.

This catches many people out especially if you are drawing down from multiple streams of income. For example, if you earn £80,000 and you opt to take a drawdown from your pension (after the tax-free initial 25% of your pension pot) of £50,000, this will breach the £100,000 threshold.

What to do if you have paid too much or too little tax

If you haven’t paid enough tax, HMRC will most certainly let you know about it. However, it is best to make sure that you don’t because they will likely add on a fine or interest onto any amount that you owe them, depending on how much it is and why you ended up owing it.

If you have paid too much tax, then they usually contact you and reimburse you. However, this isn’t always the case. The best way to make sure that you are giving the taxman the bare minimum that you have to is by having an accountant to help you through the process.

If you would like to gain a further insight into how much income tax you are likely to have to pay this year, click here. This is the government’s online calculator which helps you get a better idea of how much you owe.

We can help

If you’d like advice on whether or not you are paying the right amount of tax, get in touch with our team. We’ll discuss with you the ways that you can reduce your tax bill meaning they you get to keep more of what you’ve earned. Call us today on 01235 768 561 or drop us an email to enquiries@pantheraaccounting.com – we’ll be back in touch with you shortly.