It is a common misconception that you have to be earning large amounts of money to pay high rates of tax. In fact, a combination of withdrawal of relief and the interaction of tax and national insurance, can lead to some astonishingly high tax rates for people on quite modest incomes.
The headline 50% rate cuts in for those earning more than £150,000 per year but lower down the scale, those earning just over £100,000 pay tax at 40% and lose their personal allowance at £1 for every £2 of additional income- this gives an effective tax rate of over 60%.
Much lower down the earnings scale, a similar effect is created by the withdrawal of age allowance or family tax credits as incomes increase.
There are even cases where small pay rises at just the wrong point can actually lead to lower overall net income.
At Farrar Smith we look at your overall position and not just the headline tax rates. For example if your earnings from your own company are erratic, you can often achieve an overall reduction in tax by smoothing your earnings between tax years (perhaps by the judicious timing of dividends).