Home > Cutting Tax Bills > Cutting Your Tax Bill If You Are A Lower Paid Worker

Cutting Your Tax Bill If You Are A Lower Paid Worker

By: J.A.J Aaronson - Updated: 7 Mar 2014 | comments*Discuss
 
Tax Benefits Income Tax Employer

There has been considerable debate in recent months concerning the apparently disproportionately large amount of tax paid by those on low incomes. While it is certainly true that the lowest-paid sector of society pays a larger proportion of their income in tax than the highest-paid sector, there is still a wide range of tax relief available for those earning a low wage.

Tax and the Earnings Threshold

The rules regarding the taxation of benefits can appear complicated. Essentially, not all benefits are taxable, regardless of your income; this includes both state benefits and fringe benefits (Benefits In Kind) offered by your employer. However, for those on a lower income even those benefits that are normally taxable may not be. The magic number in these circumstances is £9,440, for the tax year 2013-2014, and this is the threshold against which an individual’s eligibility for extra tax relief on benefits is judged. For those who earn more than £9,440 per annum, the regular tax rules will remain in force. However, if you are earning less than this figure then you will fall into the category that receives extra help from the state.

If your earnings fall below the threshold, the benefits on which you will be liable for Income Tax will be determined by their cash value. Some benefits received from the state, or from an employer, can be transferred into cash, and it is these on which you will be required to pay income tax. For example, you may have received a computer as a fringe benefit from your employer. The price that your employer paid for this computer is not relevant; rather, your income tax liability is judged on the cash value of the benefit if you were to sell it second-hand on the open market.

Non-Taxable Benefits

If benefits for these individuals are taxable only with reference to their cash value, there are by definition a number of benefits, which are not taxable at all. This is because some benefits, such as discounted private medical insurance, are not transferable into cash. This is available only to the named employee and it is therefore not possible to sell on the open market. As a result, such benefits are free of tax.

In addition, there are several other benefits that will be taxed in the same way regardless of whether your earnings fall above or below the earnings threshold. One of the most commonly received of this type of benefit is the Childcare Voucher Scheme, which is administered by some employers. This type of voucher is never subject to tax, although most other vouchers are, as they can be used in exchange for goods or services.

Living accommodation is treated in the same way. If your job requires you to be offered a place to live by your employer, this benefit will be exempt from tax. Those earning less than £9,440 are, however, eligible for extra relief on heating, lighting and furnishings, as these benefits theoretically cannot be transferred into cash. It should be noted, however, that if it were judged that you do not require specific living accommodation in order to perform your job properly, this benefit would still be subject to tax regardless of your earnings.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • Jas
    Re: How Will My Second Job Be Taxed?
    Hi I have 2 jobs my first job I get paid 1150 second job paid 362 after tax it is BR tax but I'm sure on both my jobs I am…
    2 July 2020
  • Stig
    Re: What is My Tax Code?
    I recently got moved on to a k2600 tax code. My earnings have increased and I now get a fully fuelled car. My earnings prior to this were…
    19 June 2020
  • Legend
    Re: Should I be Paid Mileage Allowance?
    Hi my company are not paying me mileage I'm doing 84 miles a day.They provide me with a works van but can I still claim…
    3 June 2020
  • Caramel
    Re: How Will My Second Job Be Taxed?
    I currently have a full time job and wonder if I get a second job, is it worth it? If earning under 40k (doing both jobs and…
    30 May 2020
  • Dee
    Re: How Will My Second Job Be Taxed?
    I'm currently working full-time, as from next week I will be going part-time, and at the same time starting a new part-time…
    6 May 2020
  • Kel
    Re: How Will My Second Job Be Taxed?
    Hi I have been offered two jobs and want to work out if I accept what would I be taxed or what will I take home after tax and…
    20 April 2020
  • Ness
    Re: Should I be Paid Mileage Allowance?
    I have submitted my mileage allowance form to HMRC and have had notification that I am owed £**** for miles over 10,000.…
    17 April 2020
  • Amanda
    Re: What is My Tax Code?
    Hi I am getting a second job and I just worked it out with both wages I will still be under my personal allowance at 12500 so will I be taxed…
    4 February 2020
  • Pat
    Re: Payment of Pensions
    Who do I contact to change pension payments to weekly from monthly and is it easy to do regards Pat
    29 January 2020
  • Leelee
    Re: How Will My Second Job Be Taxed?
    I worked 48 hours a wk but hey paid for 44 hours a wk iv been offered a second job but only on bank would I have to pay tax…
    29 November 2019