Taxation 101 - A Beginner's Guide For Alan Sugar
To make it absolutely clear, here’s how much you pay in tax if you earn £150,001, with tax bands of 20% for £12,501 to £50,000, 40% for £50,001 to £150,000, and 45% for £150,001+:
First, you get to keep £12,500. You pay no tax. You bank £12,500.
Next, you have £37,500 which is taxed at 20%, because this is the amount between the 0% and 20% bands. You pay 20% of THIS in tax, which is £7,500. You keep the remaining 80%, banking £30,000. You now have £42,500 in the bank.
Next, you have £100,000 taxed at 40%. You pay 40% of THIS in tax, which is £40,000. You keep the remaining 60%, banking £60,000. You now have £102,500 in the bank.
Finally, the REST of your income is taxed at the top rate of 45%. This income amounts to £1. You pay 45p in tax, and keep 55p. You now have £102,500.55 in the bank.
Notice, if a top rate of 45% meant you had 45% of your total income taxed, this would leave you with “only” £82,500.55. Still a significant sum, but noticeably less than the £102,500.55 you keep under the ACTUAL tax system.
Anybody who claims that a top tax rate is equivalent to the percentage of income which is taxed for people whose total income meets that top rate is either lying or doesn’t
understand how income tax actually works.