PAYE - earning over £100k
Discussion
Given the average earnings on PH I thought this would be a good place to ask the question;
If you are PAYE does your payroll system automatically adjust for the reduction in personal allowance once you start earning over £100k?
Our payroll system is outsourced. It looks as if employees earning over £100k aren't having the right level of tax deducted in the year that their earnings go over the £100k threshold. Instead it's being adjusted the following year via the tax code. My questions are
1. Should the tax be deducted in the correct year?
2. Is it acceptable for the tax to be deducted the following year via a reduced Tax Code?
Thanks as ever
If you are PAYE does your payroll system automatically adjust for the reduction in personal allowance once you start earning over £100k?
Our payroll system is outsourced. It looks as if employees earning over £100k aren't having the right level of tax deducted in the year that their earnings go over the £100k threshold. Instead it's being adjusted the following year via the tax code. My questions are
1. Should the tax be deducted in the correct year?
2. Is it acceptable for the tax to be deducted the following year via a reduced Tax Code?
Thanks as ever
Eric Mc said:
HMRC should adjust the PAYE coding and notify the employer.
Thanks Eric.Is the employer then obliged to adjust the In-Year tax deductions going forward, or are they permitted to constantly use the tax code notification as a way of recovering the underpaid tax the following year?
Our payroll providers are suggesting their computer system is not set up to automatically reduce the personal allowance, which seems slightly bonkers.
I've just been caught with this.
HMRC base your tax code on your predicted earnings. If they or your company's payroll predict a salary close to your actual & at over £100k your tax code is adjusted appropriately as normal. If not:
For the preceeding year, you will be asked to do a tax return. You will then be sent a bill for what you should have paid and what you did. This will be either collected via an ammended tax code for the current year or a payment will need to be made (by 31 Jan in my case).
For the current year, if your earnings prediction changes (eg new job, or that HMRC ammend thois year based on last year's as a result of your tax return as above) the process has changed. It used to be that it would be dealt with the following year and the circle of tax continues. They now try and recover this IN YEAR via an amended tax code. In my case they were open to dealing with this retrospectively in the next tax year.
HMRC base your tax code on your predicted earnings. If they or your company's payroll predict a salary close to your actual & at over £100k your tax code is adjusted appropriately as normal. If not:
For the preceeding year, you will be asked to do a tax return. You will then be sent a bill for what you should have paid and what you did. This will be either collected via an ammended tax code for the current year or a payment will need to be made (by 31 Jan in my case).
For the current year, if your earnings prediction changes (eg new job, or that HMRC ammend thois year based on last year's as a result of your tax return as above) the process has changed. It used to be that it would be dealt with the following year and the circle of tax continues. They now try and recover this IN YEAR via an amended tax code. In my case they were open to dealing with this retrospectively in the next tax year.
@CollectingBrass
Thanks. From what you're saying it appears as if there is no obligation on the Payroll system to automatically start taking extra tax off people when they go into the £100k - £123k band and that the reduction of Personal Allowance should be via tax code only.
Am i reading that correctly?
Thanks. From what you're saying it appears as if there is no obligation on the Payroll system to automatically start taking extra tax off people when they go into the £100k - £123k band and that the reduction of Personal Allowance should be via tax code only.
Am i reading that correctly?
Like CollectingBass, I’ve just been hit by this. I’m under the threshold, but a bonus payment had HMRC sending me a revised tax code as they predicted I’d be over the limit for the year...
They’re wrong, mind you, and I had to give them a call to explain and get my code adjusted back to where it should be, but on the phone they explained that their system monitors this sort of thing, and assumes a promotion or similar for this sort of event.
TLDR; HMRC monitor earnings and adjust tax codes throughout the year to align with expected earnings.
They’re wrong, mind you, and I had to give them a call to explain and get my code adjusted back to where it should be, but on the phone they explained that their system monitors this sort of thing, and assumes a promotion or similar for this sort of event.
TLDR; HMRC monitor earnings and adjust tax codes throughout the year to align with expected earnings.
But there is also an onus on the individual to notify HMRC when circumstances change, such that you are expected to know the rules and if you’re looking like going over £100k you should register in advance for a tax ID and for self-assessment.
The payroll system should be catching it anyway, but in not being proactive the employee is just going to get a nasty tax bill a year later.
I was (un)fortunate enough to be in this position last year and told HMRC in advance so my tax code was amended for the start of the tax year, way before they would have clocked it from the PAYE records.
The payroll system should be catching it anyway, but in not being proactive the employee is just going to get a nasty tax bill a year later.
I was (un)fortunate enough to be in this position last year and told HMRC in advance so my tax code was amended for the start of the tax year, way before they would have clocked it from the PAYE records.
Hypothetically - the issue is that somebody got a big bonus in March.
When their accountant has done their self assessment form for 17-18 he has told them they owe an extra couple of grand, because of the bonus not being correctly taxed. By “correctly taxed” it WAS taxed at 40% but, due to the taper reduction, it should have been taxed at 60% (effectively). He’s suggesting the Employer should pay. The Employer is suggesting that the employee should pay.
That’s my question - is the onus on the Employer or should the Employee accept that this is normal/routine etc etc.
When their accountant has done their self assessment form for 17-18 he has told them they owe an extra couple of grand, because of the bonus not being correctly taxed. By “correctly taxed” it WAS taxed at 40% but, due to the taper reduction, it should have been taxed at 60% (effectively). He’s suggesting the Employer should pay. The Employer is suggesting that the employee should pay.
That’s my question - is the onus on the Employer or should the Employee accept that this is normal/routine etc etc.
anonymous said:
[redacted]
Re: the bit in bold - HMRC guidance is that if the underpayment is due to an Employer error then its the Employer (rather than the Employee) who has to pay. The Employee is arguing it’s an Employer error because the payroll system should have deducted it automatically.
The Employer is arguing that its not an error because the Payroll system “doesn’t work like that”.
It's a pain in the arse and has taken me a few years to get my ahead around how it works and what can go wrong.
I don't think you can blame the employer, its not a mistake. Many people get the bonus in march. Those same people should know about the reduction in allowance. You just don't spend it until you have worked out if your tax is right.
I'm guessing it's spent already...
I don't think you can blame the employer, its not a mistake. Many people get the bonus in march. Those same people should know about the reduction in allowance. You just don't spend it until you have worked out if your tax is right.
I'm guessing it's spent already...
Countdown said:
Re: the bit in bold - HMRC guidance is that if the underpayment is due to an Employer error then its the Employer (rather than the Employee) who has to pay.
The Employee is arguing it’s an Employer error because the payroll system should have deducted it automatically.
The Employer is arguing that its not an error because the Payroll system “doesn’t work like that”.
So just to come back to this, it's not an employer error as long as they've correctly applied/calculated the tax code that HMRC would have sent them (it's all done electronically now). The employer is not to know if the employee has other arrangements that reduce their taxable earnings, e.g. by making manual pension contributions, so can only go by the information they are given.The Employee is arguing it’s an Employer error because the payroll system should have deducted it automatically.
The Employer is arguing that its not an error because the Payroll system “doesn’t work like that”.
The only person that should really know if the tax code is correct, and is therefore responsible, is the employee.
Thanks folks
Anyway he's shut up and gone back to his Accountant so hopefuly that's that.
Jefferson Steelflex said:
So just to come back to this, it's not an employer error as long as they've correctly applied/calculated the tax code that HMRC would have sent them (it's all done electronically now). The employer is not to know if the employee has other arrangements that reduce their taxable earnings, e.g. by making manual pension contributions, so can only go by the information they are given.
The only person that should really know if the tax code is correct, and is therefore responsible, is the employee.
Tax code has definitely been applied correctly. However what I cant understand is that when somebody moves from 20% band to 40% band the payroll system automatically deducts the extra tax. And the same when a person moves from 40% band to 45% band. So why can't the payroll system automatically take extra tax when somebody earns between £100 and £123k?The only person that should really know if the tax code is correct, and is therefore responsible, is the employee.
Anyway he's shut up and gone back to his Accountant so hopefuly that's that.
Countdown said:
Given the average earnings on PH I thought this would be a good place to ask the question;
If you are PAYE does your payroll system automatically adjust for the reduction in personal allowance once you start earning over £100k?
Our payroll system is outsourced. It looks as if employees earning over £100k aren't having the right level of tax deducted in the year that their earnings go over the £100k threshold. Instead it's being adjusted the following year via the tax code. My questions are
1. Should the tax be deducted in the correct year?
2. Is it acceptable for the tax to be deducted the following year via a reduced Tax Code?
Thanks as ever
Ive had the latter issue for a few years ongoing now - I now normally get a letter c.July/August from HMRC advising I have underpaid by £X amount and my tax code for the following year will reflect the claw-back.If you are PAYE does your payroll system automatically adjust for the reduction in personal allowance once you start earning over £100k?
Our payroll system is outsourced. It looks as if employees earning over £100k aren't having the right level of tax deducted in the year that their earnings go over the £100k threshold. Instead it's being adjusted the following year via the tax code. My questions are
1. Should the tax be deducted in the correct year?
2. Is it acceptable for the tax to be deducted the following year via a reduced Tax Code?
Thanks as ever
Its a nusance and our payroll is outsourced and they cant seem to sort it/stop it happening
Over 100k you self assess as well. Suggest to get an accountant, at the cost of approve £300 per year, to support and do it on your behalf. It's a small cost, but he saved me a considerable small fortune by monitoring and dealing with things on my behalf, and pushing certain things through HMRC to obtain refunds etc.
Employer just deducts based on the code given by the Inland Revenue.
FWIW I find the latest Self Assessment process online very simple now. My code has been automatically adjusted in the past, but never quite enough. Also it never seems to take 45% into account. I just expect to have a tax bill and put some money aside now. It's not hard.
FWIW I find the latest Self Assessment process online very simple now. My code has been automatically adjusted in the past, but never quite enough. Also it never seems to take 45% into account. I just expect to have a tax bill and put some money aside now. It's not hard.
BobSaunders said:
Over 100k you self assess as well.
I have yet to be asked to do a self assessment, and have always been in the camp of catching up the following year via PAYE. Am likely to become self employed in early 2019, so now actually need to get on the case with where I am before I get a big surprise down the line..!
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