So I paid no tax this month and got a minus £650?
Discussion
Anyhoo.... My employer sorted my paternity pay today, statutory of course, and expecting 50% of my wage to be paid, I ended up with 25% more (bottom line) due to not paying any tax and showing tax paid as -£650.... So I paid no tax and received £650 extra.....
Has this happened to anyone else following paternity?
Of course being PH I earn 7 figures. So I'm used to paying a lot of tax. Why would I get a refund?
Has this happened to anyone else following paternity?
Of course being PH I earn 7 figures. So I'm used to paying a lot of tax. Why would I get a refund?
Your wage has gone down by 50%?
HMRC assume that you will now being earning that new salary for the rest of the year. Hence they look at what you have already paid and realise that, if you continue to only earn 50% of what you were doing, you will have paid too much tax by the end of the year.
E.g.
Earn 36K per year (~3k per month), taxed on 24K of it so ~ 4.8K in tax (it's just an example). At this point 4 months in you'd therefore have paid 1.6K in tax (i.e. 1/3 of the annual amount)
Suddenly HMRC think you only earn 18K per year, taxed on 6K of it, so an annual amount of 1.2K in tax.
Oops, they have already overcharged you £400 so you'd get a refund as they wouldn't expect you to pay any more tax that year.
Slightly extreme example to make a point, does that make sense? HMRC always assume this month's salary is going to be the same for the rest of the year, but they (obviously) use the YTD figures when seeing how much tax you have already paid and therefore how much to pay this month.
HMRC assume that you will now being earning that new salary for the rest of the year. Hence they look at what you have already paid and realise that, if you continue to only earn 50% of what you were doing, you will have paid too much tax by the end of the year.
E.g.
Earn 36K per year (~3k per month), taxed on 24K of it so ~ 4.8K in tax (it's just an example). At this point 4 months in you'd therefore have paid 1.6K in tax (i.e. 1/3 of the annual amount)
Suddenly HMRC think you only earn 18K per year, taxed on 6K of it, so an annual amount of 1.2K in tax.
Oops, they have already overcharged you £400 so you'd get a refund as they wouldn't expect you to pay any more tax that year.
Slightly extreme example to make a point, does that make sense? HMRC always assume this month's salary is going to be the same for the rest of the year, but they (obviously) use the YTD figures when seeing how much tax you have already paid and therefore how much to pay this month.
Flooble said:
Your wage has gone down by 50%?
HMRC assume that you will now being earning that new salary for the rest of the year. Hence they look at what you have already paid and realise that, if you continue to only earn 50% of what you were doing, you will have paid too much tax by the end of the year.
E.g.
Earn 36K per year (~3k per month), taxed on 24K of it so ~ 4.8K in tax (it's just an example). At this point 4 months in you'd therefore have paid 1.6K in tax (i.e. 1/3 of the annual amount)
Suddenly HMRC think you only earn 18K per year, taxed on 6K of it, so an annual amount of 1.2K in tax.
Oops, they have already overcharged you £400 so you'd get a refund as they wouldn't expect you to pay any more tax that year.
Slightly extreme example to make a point, does that make sense? HMRC always assume this month's salary is going to be the same for the rest of the year, but they (obviously) use the YTD figures when seeing how much tax you have already paid and therefore how much to pay this month.
HMRC work on cummulative gross not just month by month, we're in month 5 so might be something to do with it.HMRC assume that you will now being earning that new salary for the rest of the year. Hence they look at what you have already paid and realise that, if you continue to only earn 50% of what you were doing, you will have paid too much tax by the end of the year.
E.g.
Earn 36K per year (~3k per month), taxed on 24K of it so ~ 4.8K in tax (it's just an example). At this point 4 months in you'd therefore have paid 1.6K in tax (i.e. 1/3 of the annual amount)
Suddenly HMRC think you only earn 18K per year, taxed on 6K of it, so an annual amount of 1.2K in tax.
Oops, they have already overcharged you £400 so you'd get a refund as they wouldn't expect you to pay any more tax that year.
Slightly extreme example to make a point, does that make sense? HMRC always assume this month's salary is going to be the same for the rest of the year, but they (obviously) use the YTD figures when seeing how much tax you have already paid and therefore how much to pay this month.
Did your tax code change OP?
If not try salary calculator website, put in one example at say £36k example and another at £21k - if my maths are right that would be 4 months higher salary and 8 months lower salary. You'll get the total annual tax and monthly amounts shown.
K codes mean you have in effect a negative personal allowance.
Usually you get 12.5K "tax free", i.e. you can earn 12.5K before you start paying tax.
If you have a K code then for whatever reason you have to pay tax on everything you earn and then some. K247 means that you have to pay tax on your entire salary and an extra £2470 on top. Which means that if you earn £30K, they treat you as if you earn £32.5K. So your tax rate would be a bit more than 20% (as in that example they would want 20% of 32.5K, which by definition is more than 20% of 30K
). And obviously you are paying far more than some who was on £30K and benefitted from the 12.5K personal allowance (they would only be paying tax on 17.5K of their salary; 20% of 17.5K being nearly half what the K-coded person in this example has to pay).
This probably explains the significant jump.
Usually you get 12.5K "tax free", i.e. you can earn 12.5K before you start paying tax.
If you have a K code then for whatever reason you have to pay tax on everything you earn and then some. K247 means that you have to pay tax on your entire salary and an extra £2470 on top. Which means that if you earn £30K, they treat you as if you earn £32.5K. So your tax rate would be a bit more than 20% (as in that example they would want 20% of 32.5K, which by definition is more than 20% of 30K
). And obviously you are paying far more than some who was on £30K and benefitted from the 12.5K personal allowance (they would only be paying tax on 17.5K of their salary; 20% of 17.5K being nearly half what the K-coded person in this example has to pay).This probably explains the significant jump.
Mr Spoon said:
So that goes some way to explaining why the sudden tax refund, but I'd imagine it would be based over a longer period. Eg my wage goes back to normal next month, so will I go back to a k code?.
I have up my car two years ago for an allowance. I have no other bik.
Yeah next month they'll see you are back to earning you 10 million a year and they'll recalculate. No idea why you are on a K code but don't want to pry. It's usually if there's underpaid tax or lots of benefits that need to be taxed, or you fall into some awkward banding around something or other - could be that 100-125K banding (and above) where you gradually lose your personal allowance.I have up my car two years ago for an allowance. I have no other bik.
Mr Spoon said:
Because it's a forum, regardless what I tell you I want, it could be all made up anyway. That's the nuts thing about the interweb.
If one was to not have a personal allowance, then why would they, mid way through the year, give me a "normal tax code"
Sorry for the delay but Keira Knightley was calling me back to bed.If one was to not have a personal allowance, then why would they, mid way through the year, give me a "normal tax code"
The "personal allowance" isn't a fixed thing - basically they calculate your tax every month based on what you've paid and what it (appears) you will pay over the year. I remember once changing jobs where for various reasons my salary halved. That resulted in a chunk of tax back.
Anyway, must dash, Megan Fox is waiting.
Gassing Station | Finance | Top of Page | What's New | My Stuff