PAYE tax when only working part of the year
Discussion
One of the young lads from work is planning on going travelling later this year. He has been working some overtime to save up for when he is travelling and it has gotten to the point where if he works any more overtime he will go into the higher rate tax bracket for this year. He isn’t too worried with that but he is that he will then be taxed at a higher rate on his pay for the following few months before he goes travelling. (He is leaving at the beginning of August & has no return date so he definitely will not reach the higher threshold next tax year)
Is it the case he will be taxed higher on his remaining pays at the beginning of the new tax year or is he mistaken?
Is it the case he will be taxed higher on his remaining pays at the beginning of the new tax year or is he mistaken?
Each tax year is separate. For tax year 2023/24, if he left now and didn’t earn any more income before 5 April 2024, his correct tax would be based on what he earned between 6 April 2023 and the date he left employment. If he paid too much tax, he might need to contact HMRC to let them know that he won’t be earning anything before 5April 2024.
You only pay tax on what you earn each month not what you earned last year.
So PAYE is worked out on what you earned this month if that goes above the tax fresh hold / 12 you will pay higher rate tax on the pay above the fresh hold. If you then stop earning for the rest of the year and by the end of the tax year you are under the fresh hold, you will be entitled to a refund.
So you could earn £12k in January and pay a lot of tax, then not work at all for the rest of the year and get all your tax back.
Hope this helps.
So PAYE is worked out on what you earned this month if that goes above the tax fresh hold / 12 you will pay higher rate tax on the pay above the fresh hold. If you then stop earning for the rest of the year and by the end of the tax year you are under the fresh hold, you will be entitled to a refund.
So you could earn £12k in January and pay a lot of tax, then not work at all for the rest of the year and get all your tax back.
Hope this helps.
ARHarh said:
You only pay tax on what you earn each month not what you earned last year.
So PAYE is worked out on what you earned this month if that goes above the tax fresh hold / 12 you will pay higher rate tax on the pay above the fresh hold. If you then stop earning for the rest of the year and by the end of the tax year you are under the fresh hold, you will be entitled to a refund.
So you could earn £12k in January and pay a lot of tax, then not work at all for the rest of the year and get all your tax back.
Hope this helps.
Correct but its Threshold.So PAYE is worked out on what you earned this month if that goes above the tax fresh hold / 12 you will pay higher rate tax on the pay above the fresh hold. If you then stop earning for the rest of the year and by the end of the tax year you are under the fresh hold, you will be entitled to a refund.
So you could earn £12k in January and pay a lot of tax, then not work at all for the rest of the year and get all your tax back.
Hope this helps.
ARHarh said:
You only pay tax on what you earn each month not what you earned last year.
So PAYE is worked out on what you earned this month if that goes above the tax fresh hold / 12 you will pay higher rate tax on the pay above the fresh hold. If you then stop earning for the rest of the year and by the end of the tax year you are under the fresh hold, you will be entitled to a refund.
So you could earn £12k in January and pay a lot of tax, then not work at all for the rest of the year and get all your tax back.
Hope this helps.
This. I retired mid year, and my kids have both recently started working part way through the year,. You get a rebate after the tax year has concluded. IIRC it's quite late in the year when it comes. You would think it could be calculated and refunded quite quickly these days.So PAYE is worked out on what you earned this month if that goes above the tax fresh hold / 12 you will pay higher rate tax on the pay above the fresh hold. If you then stop earning for the rest of the year and by the end of the tax year you are under the fresh hold, you will be entitled to a refund.
So you could earn £12k in January and pay a lot of tax, then not work at all for the rest of the year and get all your tax back.
Hope this helps.
Sy1441 said:
ARHarh said:
You only pay tax on what you earn each month not what you earned last year.
So PAYE is worked out on what you earned this month if that goes above the tax fresh hold / 12 you will pay higher rate tax on the pay above the fresh hold. If you then stop earning for the rest of the year and by the end of the tax year you are under the fresh hold, you will be entitled to a refund.
So you could earn £12k in January and pay a lot of tax, then not work at all for the rest of the year and get all your tax back.
Hope this helps.
Correct but its Threshold.So PAYE is worked out on what you earned this month if that goes above the tax fresh hold / 12 you will pay higher rate tax on the pay above the fresh hold. If you then stop earning for the rest of the year and by the end of the tax year you are under the fresh hold, you will be entitled to a refund.
So you could earn £12k in January and pay a lot of tax, then not work at all for the rest of the year and get all your tax back.
Hope this helps.
I might not be able to spell but at least I understand tax.
I’ve just passed the messages on and he has raised another point of which I’m unsure. Say he earned 49 k up until month 11 of the tax year, then 10k in month 12 for example. Would his pay in months 1-3 of next year be taxed at a higher rate to try and recoup the tax of the 2023 tax year?
I had a tax year where I wasn't earning anything for a number of months, then started a new job. I thought it was great that I would get the full annual income tax allowance spread across just seven months or whatever it was. One thing caught me out though - National Insurance doesn't work off annual thresholds, so I was charged the normal rate of NI for the months I was working, whereas I'd assumed I'd pay less, as with income tax.
For people whose monthly income is wildly inconsistent, I suppose this could throw up some anomalies around the threshold where income tax goes up to the higher rate but NI comes down.
For people whose monthly income is wildly inconsistent, I suppose this could throw up some anomalies around the threshold where income tax goes up to the higher rate but NI comes down.
AF1 said:
I’ve just passed the messages on and he has raised another point of which I’m unsure. Say he earned 49 k up until month 11 of the tax year, then 10k in month 12 for example. Would his pay in months 1-3 of next year be taxed at a higher rate to try and recoup the tax of the 2023 tax year?
If your payroll department are doing their job correctly, then no.It's all quite simple really, but there is a simple re-adjustment in thinking needed.
Whilst tax is deducted on what you earned that month, it's calculated based on YTD earnings, YTD deductions (tax, NI etc) and YTD allowances / thresholds. Assuming a "normal" tax code, if you earn £1,000 / month for the first 11 months of the year, then you pay no income tax at all during those months. If you then earn £19,000 in month 12 then you'll be paying 20% tax on £17,500 (£30K - £12.5K) - that tax will all be deducted from your month 12 pay.
omniflow said:
If your payroll department are doing their job correctly, then no.
It's all quite simple really, but there is a simple re-adjustment in thinking needed.
Whilst tax is deducted on what you earned that month, it's calculated based on YTD earnings, YTD deductions (tax, NI etc) and YTD allowances / thresholds. Assuming a "normal" tax code, if you earn £1,000 / month for the first 11 months of the year, then you pay no income tax at all during those months. If you then earn £19,000 in month 12 then you'll be paying 20% tax on £17,500 (£30K - £12.5K) - that tax will all be deducted from your month 12 pay.
It's all quite simple really, but there is a simple re-adjustment in thinking needed.
Whilst tax is deducted on what you earned that month, it's calculated based on YTD earnings, YTD deductions (tax, NI etc) and YTD allowances / thresholds. Assuming a "normal" tax code, if you earn £1,000 / month for the first 11 months of the year, then you pay no income tax at all during those months. If you then earn £19,000 in month 12 then you'll be paying 20% tax on £17,500 (£30K - £12.5K) - that tax will all be deducted from your month 12 pay.
Thanks, that makes sense. I will pass on info.
Was going to ask this question closer to April, but as it's come up.....
How do you get a new tax code at the beginning of the tax year? I left full time employment in December to do a zero hours minimum wage 'job'. Currently (as expected) being charged full marginal rate on (minimal) pay but as my earnings will be less than 10k a year assume I can get a new tax code in April?
How do you get a new tax code at the beginning of the tax year? I left full time employment in December to do a zero hours minimum wage 'job'. Currently (as expected) being charged full marginal rate on (minimal) pay but as my earnings will be less than 10k a year assume I can get a new tax code in April?
The tax code has nothing to do with how much you earn. Each person gets a standard code which is then altered if you get taxable benefits or if you paid too much or not enough tax the year before. It may be altered for other reason as well, but I am not sure about that. If you are paid PAYE, the tax should be sorted by who ever does the payrol.
MarcelM6 said:
Was going to ask this question closer to April, but as it's come up.....
How do you get a new tax code at the beginning of the tax year? I left full time employment in December to do a zero hours minimum wage 'job'. Currently (as expected) being charged full marginal rate on (minimal) pay but as my earnings will be less than 10k a year assume I can get a new tax code in April?
What tax code is being used on your current payslips?How do you get a new tax code at the beginning of the tax year? I left full time employment in December to do a zero hours minimum wage 'job'. Currently (as expected) being charged full marginal rate on (minimal) pay but as my earnings will be less than 10k a year assume I can get a new tax code in April?
Did you give your P45 to the payroll department in your new 'job'?
If you did, they should be using your actual tax code - if they're not, then you should chase them. If you didn't, you'll be on an emergency tax code, and you should give your P45 to the payroll department in your new 'job'.
omniflow said:
What tax code is being used on your current payslips?
Did you give your P45 to the payroll department in your new 'job'?
If you did, they should be using your actual tax code - if they're not, then you should chase them. If you didn't, you'll be on an emergency tax code, and you should give your P45 to the payroll department in your new 'job'.
They have my P45 and the correct code for 23/24. My question was how do I get a new tax code in April for the 24/25 tax year when I will be earning below 12k per annum?Did you give your P45 to the payroll department in your new 'job'?
If you did, they should be using your actual tax code - if they're not, then you should chase them. If you didn't, you'll be on an emergency tax code, and you should give your P45 to the payroll department in your new 'job'.
MarcelM6 said:
omniflow said:
What tax code is being used on your current payslips?
Did you give your P45 to the payroll department in your new 'job'?
If you did, they should be using your actual tax code - if they're not, then you should chase them. If you didn't, you'll be on an emergency tax code, and you should give your P45 to the payroll department in your new 'job'.
They have my P45 and the correct code for 23/24. My question was how do I get a new tax code in April for the 24/25 tax year when I will be earning below 12k per annum?Did you give your P45 to the payroll department in your new 'job'?
If you did, they should be using your actual tax code - if they're not, then you should chase them. If you didn't, you'll be on an emergency tax code, and you should give your P45 to the payroll department in your new 'job'.
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