PAYE

[rfisher]

If you are a 40% income tax payer does your employer take 40% off your salary starting with your April wage packet?

Or do you start at 0% for the first whatever you're allowed then 20% after they've paid you above the 0% allowance etc.?

[sinizter]

They tend to spread your tax free allowance through the year so you would get more or less equal payments rather than loads at the beginning and less a bit later.

[rfisher]

What about extra payments?

I've just been taxed on a relocation claim at 40%.

Can I ask payroll to tote up my earnings so far this tax year and get taxed at 20# on the relocation claim instead of 40%?

All seems a bit of a rip off at the moment saying 'well you will be on 40% tax at some point in this tax year so we'll take 40% now anyway'.

[ymwoods]

rfisher said:

What about extra payments?

I've just been taxed on a relocation claim at 40%.

Can I ask payroll to tote up my earnings so far this tax year and get taxed at 20# on the relocation claim instead of 40%?

All seems a bit of a rip off at the moment saying 'well you will be on 40% tax at some point in this tax year so we'll take 40% now anyway'.

It's not a rip off as once you hit the bracket for taking 40% tax off you then they tax at 40% on EVERYTHING you earnt that year so you would just end up with massive back payments to make.

What they do at the moment is work it so that if your earning £1200 on average per month/week they tot it up, work out how much tax you should pay each year then divide it by your paydates (weekly, monthly) and then charge this. If your weekly/Monthly payments change then they up or down this amount during the course of the year.

[Eric Mc]

The PAYE system assumes that your salary will be spread evenly throughout the year. Therefore all your tax allowances and rate bands are also spread evenly throughout the year.

This means that, assuming you are paid monthly, you get 1/12 of your allowances and 1/12 your tax bandings alloctaed against 1/12 your annuakl salary every month. This ensures that your Income Tax and NI is also spread evenly throughout the year.

Because the system also calculates the tax and NI on an accumulative basis, this means any increases (or reductions) in your monthly salary are automatically calculated correctly so you don't tend to get hit by any sudden tax or NI amounts.

The only exception is the way NI is calculated for Company Directors which, for special reasons relating to directors, is NOT calculated on an cumulative basis.

[onomatopoeia]

Eric Mc said:

Because the system also calculates the tax and NI on an accumulative basis, this means any increases (or reductions) in your monthly salary are automatically calculated correctly so you don't tend to get hit by any sudden tax or NI amounts.

Although if one month you are paid a lot more and it suddenly puts you into the 40% bad averaged out of the the year to date the tables don't cope that well with it in the short term and your salary will oscillate for a couple of months after, especially if the following month your gross drops you back to the 20% band. It all evens out over the year though.

[Eric Mc]

Yes, if you have pay extremes the system goes into a kind of oscillation mode whilst it copes with the increase/decrease. However, if all the factors concerning your situation during the year are correctly included in your Tax Coding, the amount of PAYE you pay in the year to 5 April should be correct.

The key to making PAYE work correctly is ensuring that the PAYE Tax Coding is correct.