PAYE and higher tax question

PAYE and higher tax question

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tvradict

Original Poster:

3,829 posts

273 months

Saturday 8th November 2014
quotequote all
I never thought Id be in a position to ask this...

My understanding of PAYE is very limited, and as with everything government, the HMRC web site just added to my confusion.

I earn a reasonable wage, and every other month, with the way my shifts fall, it's possibly to earn a good amount in overtime. Enough to put us in danger of hitting the higher tax bracket. A few have in the past. This month I've found myself in that very position.

My questions are,

If I earn enough in one month to put myself into the higher tax bracket for that month, will I pay 40% tax, even though I'm highly unlikely to hit £41k gross for the year?

Is 40% tax taken on the whole wage, or just the amount over the 'threshold'.

What is the threshold?

TIA



98elise

26,376 posts

160 months

Saturday 8th November 2014
quotequote all
I can't answer all the questions, but you will only pay 40% on money over the threashold.

Also this means that you will need to pay 40% on any savings interest (or other income streams).


tvradict

Original Poster:

3,829 posts

273 months

Saturday 8th November 2014
quotequote all
Thanks,

Anyone any idea what the threshold is??

mph1977

12,467 posts

167 months

Sunday 9th November 2014
quotequote all
https://www.gov.uk/government/publications/rates-a...

the key point is what you earn over the year , as if your employer does their PAYE properly the lean months will balance out the months you may pay a bit of 40 %

tvradict

Original Poster:

3,829 posts

273 months

Sunday 9th November 2014
quotequote all
I'm not sure how my employer balances the tax, payroll was subcontracted out a few months back.

Reading through that document and adding in some simple maths, would suggest a monthly higher tax threshold of

£3488 Gross

But it can't be that simple.

simoid

19,772 posts

157 months

Sunday 9th November 2014
quotequote all
I THINK you'll get taxed on the monthly equivalent, ie if you do a lot of overtime in 1 particular month, then whatever you earn over (the 40% threshold divided by 12) will be taxed at 40%. If you are due money back, you get a rebate at some future date. Think that's how it worked when I was last PAYE.

I assume you'll be paid a monthly salary which is balanced out over the year (ie some months you might work 160 hours, others 100, but you still get paid £3k gross or whatever). However, your employer probably can't smooth out the overtime, so the easiest thing to do is tax you just in case.

Edited by simoid on Sunday 9th November 02:52

PurpleMoonlight

22,362 posts

156 months

Sunday 9th November 2014
quotequote all
Don't worry about it on a monthly basis. It will be rectified automatically through the rest of the tax year and if you have earned less than £42,000 odd you will have paid not tax at 40%.

If you have earned over £42,000 then only earnings over that will have been subject to 40% tax.

Simpo Two

85,150 posts

264 months

Sunday 9th November 2014
quotequote all
The only plus side of hitting 40%, as I see it, is that you get more tax relief on your pension.

2 sMoKiN bArReLs

30,230 posts

234 months

Sunday 9th November 2014
quotequote all
PurpleMoonlight said:
Don't worry about it on a monthly basis. It will be rectified automatically through the rest of the tax year and if you have earned less than £42,000 odd you will have paid not tax at 40%.

If you have earned over £42,000 then only earnings over that will have been subject to 40% tax.
Unless tax code is on a week 1/month 1 basis. More care is then needed

blank

3,439 posts

187 months

Sunday 9th November 2014
quotequote all
Do you have pension deductions?

Many people don't realise that they reduce your taxable income.

So say you have a £45k salary but you pay 10% into a pension, you only pay tax on £40.5k. So you are not in the 40% bracket.

Basically if you think you're borderline but pay a decent amount in to a pension you're probably actually a fair way from 40% tax.

MrPicky

1,233 posts

266 months

Sunday 9th November 2014
quotequote all
The way that the tax should be taken by the employer is that the employer keeps a track of the gross earnings from the start of the financial year and also the tax paid from the start and bases the tax paid each month on those totals.

A very simple example that doesn't take into account pensions, tax codes and benefits such as company cars.

Assume that the tax threshold is 42,000 round figure which is 3,500 per month.

Situation 1

If in month 1 you earn 3,000 then pay tax on that without any at 40% then in month 2 you earn 4,000 the total tax paid would just not get into the 40% bracket.

Situation 2

If in month 1 you earn 4,000 then you will pay 40% tax on the extra 500 but in month 2 you earn 3,000then this month you will pay tax on the 3,000 minus the bit extra you paid in month 1.

At the end of the financial year both situations you would have earned 42,000 and paid the same tax.

2 sMoKiN bArReLs

30,230 posts

234 months

Sunday 9th November 2014
quotequote all
MrPicky said:
The way that the tax should be taken by the employer is that the employer keeps a track of the gross earnings from the start of the financial year and also the tax paid from the start and bases the tax paid each month on those totals.

A very simple example that doesn't take into account pensions, tax codes and benefits such as company cars.

Assume that the tax threshold is 42,000 round figure which is 3,500 per month.

Situation 1

If in month 1 you earn 3,000 then pay tax on that without any at 40% then in month 2 you earn 4,000 the total tax paid would just not get into the 40% bracket.

Situation 2

If in month 1 you earn 4,000 then you will pay 40% tax on the extra 500 but in month 2 you earn 3,000then this month you will pay tax on the 3,000 minus the bit extra you paid in month 1.

At the end of the financial year both situations you would have earned 42,000 and paid the same tax.
Unless week 1 tax code applied, in which case it's a monthly calculation, not cumulative

mph1977

12,467 posts

167 months

Sunday 9th November 2014
quotequote all
2 sMoKiN bArReLs said:
Unless week 1 tax code applied, in which case it's a monthly calculation, not cumulative
week 1 / month 1 should only be operated in the period betweena new starter providing a P46 saying this is their main job now and the arrival of the P45 and/or HMRC confirming the year to date figures.

to save old fashioned 'emergency tax' at BR than a large refund whne the current year to date infromation caught up

unless you are a lazy Agency who doesn't do cumulative and claims that agencies aren't obliged to pay SSP ...

2 sMoKiN bArReLs

30,230 posts

234 months

Sunday 9th November 2014
quotequote all
mph1977 said:
2 sMoKiN bArReLs said:
Unless week 1 tax code applied, in which case it's a monthly calculation, not cumulative
week 1 / month 1 should only be operated in the period betweena new starter providing a P46 saying this is their main job now and the arrival of the P45 and/or HMRC confirming the year to date figures.

.
Nope. HMRC often issue a week 1 code part way through the year

2 sMoKiN bArReLs

30,230 posts

234 months

Sunday 9th November 2014
quotequote all
2 sMoKiN bArReLs said:
mph1977 said:
2 sMoKiN bArReLs said:
Unless week 1 tax code applied, in which case it's a monthly calculation, not cumulative
week 1 / month 1 should only be operated in the period betweena new starter providing a P46 saying this is their main job now and the arrival of the P45 and/or HMRC confirming the year to date figures.

.
Nope. HMRC often issue a week 1 code part way through the year
But even so, somebody was saying the tax thing will sort itself out. I'm just saying beware the month 1 code

mph1977

12,467 posts

167 months

Sunday 9th November 2014
quotequote all
2 sMoKiN bArReLs said:
mph1977 said:
2 sMoKiN bArReLs said:
Unless week 1 tax code applied, in which case it's a monthly calculation, not cumulative
week 1 / month 1 should only be operated in the period betweena new starter providing a P46 saying this is their main job now and the arrival of the P45 and/or HMRC confirming the year to date figures.

.
Nope. HMRC often issue a week 1 code part way through the year
the point in the tax year is irrelevant

week 1 / month 1 for more than a couple of weeks is down to the employer (either old or new) not doing their paperwork properly

oddly enough every time i've changed substantive employer it's gone through remarkably cleanly, in the past the odd month of BR and more recently the odd coupel of weeks / month of W1 / M1 working ... however periods working ofr Agencies and stayign on W1 for months on end then getting a tax refund from either the next substantive employer or the HMRC at year end suggests it's laziness ...

2 sMoKiN bArReLs

30,230 posts

234 months

Sunday 9th November 2014
quotequote all
mph1977 said:
2 sMoKiN bArReLs said:
mph1977 said:
2 sMoKiN bArReLs said:
Unless week 1 tax code applied, in which case it's a monthly calculation, not cumulative
week 1 / month 1 should only be operated in the period betweena new starter providing a P46 saying this is their main job now and the arrival of the P45 and/or HMRC confirming the year to date figures.

.
Nope. HMRC often issue a week 1 code part way through the year
the point in the tax year is irrelevant

week 1 / month 1 for more than a couple of weeks is down to the employer (either old or new) not doing their paperwork properly

And you are still wrong.

HMRC typically issue a mid term wk1 code if using the code cumulatively would result in a very poor pay packet. (Usually straight after a tax return suggests a significant change)



mph1977

12,467 posts

167 months

Sunday 9th November 2014
quotequote all
2 sMoKiN bArReLs said:
mph1977 said:
2 sMoKiN bArReLs said:
mph1977 said:
2 sMoKiN bArReLs said:
Unless week 1 tax code applied, in which case it's a monthly calculation, not cumulative
week 1 / month 1 should only be operated in the period betweena new starter providing a P46 saying this is their main job now and the arrival of the P45 and/or HMRC confirming the year to date figures.

.
Nope. HMRC often issue a week 1 code part way through the year
the point in the tax year is irrelevant

week 1 / month 1 for more than a couple of weeks is down to the employer (either old or new) not doing their paperwork properly

And you are still wrong.

HMRC typically issue a mid term wk1 code if using the code cumulatively would result in a very poor pay packet. (Usually straight after a tax return suggests a significant change)
I think you mis understand the purpose of week 1 working - it;ls there to minimise the overcharge and refund that was all too typical when 'emergency' tax of BR or D0 ( all income fro mthis job to be taxed at higher rate ) was used in the absdenceof confirmed tax code AND year to date figures

You are, in fact asnd typical PH style , completely wrong here as HMRC themselves state the following with regard to W1 / M1 working


"If your tax code has ‘W1’ or ‘M1’ at the end
W1 (week 1) and M1 (month 1) are emergency tax codes. This means your tax is based only on what you are paid in the current pay period, not the whole year.

Which code you get depends on whether you are paid weekly or monthly.

They appear at the end of your tax code, eg ‘577L W1’ or ‘577L M1’"

https://www.gov.uk/tax-codes/letters-in-your-tax-c...

they further via an embedded link in the above to https://www.gov.uk/emergency-tax-code, state ,


"You’re on an emergency tax code if your payslip says your tax code is 1000L W1, 1000L M1 or 1000L X.
Emergency tax codes are temporary. While you’re on an emergency tax code, you pay tax on all your income above the basic Personal Allowance (£10,000 for the 2014 to 2015 tax year).

If your tax code is just 1000L it’s not an emergency tax code.

When you might get an emergency tax code
You may be put on an emergency tax code if you’ve started:

a new job
working for an employer after being self employed
getting company benefits or the State Pension
Getting the right tax code
You’ll usually get the right tax code once HM Revenue and Customs have received details of your previous income or pension, eg your P45. They’ll send the new tax code to you and your employer or pension provider who’ll adjust their next payment to:

repay you tax you’ve overpaid
pay any tax you owe
If you think being on an emergency tax code means you’ve paid too much at the end of a tax year, you can claim a refund."

2 sMoKiN bArReLs

30,230 posts

234 months

Sunday 9th November 2014
quotequote all
Mate, give it up.


2 sMoKiN bArReLs

30,230 posts

234 months

Sunday 9th November 2014
quotequote all
Just to get the whole thing back on track:

Your payroll should take care of the tax rates over the year. The thing that can mess it up is week 1/month 1 tax codes.

Everybody happy with that? biggrin