At a recent discussion at a pub, my friend told me they are paying 60% tax. I didn’t believe him and decided to look it up. None of the tax tables refer to a 60% rate. Can you please explain?
The 60% rate is an effective rate rather than an actual rate. Let us suppose you are a company director considering the possibility of taking a bonus. Assuming they have no other income, if his total pay is currently £100,000 he has taxable income of £88,500 after deducting the personal allowance of £11,500. The personal allowance is reduced by £1 for every £2 of income above the income limit of £100,000. So if he takes a bonus of £23,000 the personal allowance is reduced to zero and his taxable income is £123,000.