[Archived] Coupla Tax Questions

[BRFC4EVA]

Howdy gents. Im fresh out of uni this year having graduated in June and im in my first full time job. Its the first time ive really had to sit down and think about tax, as before I would always be comfortably under the threshold or it would be cash in hand. Ive done some research and I think I know what im talkin about, but Id thought id check with a few of the more senior pro's on here. Anyways, I began my job in October 2008, having not worked at all previously during the year. In the first 2 months of working, I was taxed 20% on everything I earnt above the £500 a month threshold.... however

1.) Am I right in believeing that because I only started earning halfway through the year, my tax allowance of 6k is spread out over only 6 months instead of 12 months, therefore meaning that my taxfree threshold from october 2008 until the new tax year should be around £1000 a month?

2.) If I am correct on this front, when do I get the money back. I understand that rebates are given in April, but I also thought that if you've been overtaxed in a manner when you shoullnt have (cos obv with the details I sent them they should have realised the situation) you can get your tax money back earlier then that?

Thanks for any help. Im prob gonna ring the tax office anyways, but Id just thought id run it by to make sure I werent talking rubbish.

[Paul]

For most people tax is much simpler than we imagine. You just need a calculator and a little thought. The Personal Allowance for 2008 - 09 is £6035 and for basic rate tax payers the rate is 20%. You're allowance is for the year regardless of when you earn the money in that year. To calculate the tax you will pay do the following sum, assumming you earn £10000 per annum:

£10000 - £6035 = £3965 which is your taxable pay for the year

£3965 / 100 = £39.65 x 20 = £793 is the total tax you pay on a salary of £10,000

£793 / 12 = £66 which is the tax you should pay each month

Most people pay tax under the Pay As You Earn (PAYE) scheme which should equalise your payments through the year and correct any under or overpayment as you go along. Your employer will have tax tables or a software programme which calculates how much tax you should pay. This is determined by your tax code. As a new employee it may be the admin from both the tax office and your employer have not caught up with each other. Your employer has to use what is called "Emergency Coding" (This is why you have been taxed at 20% on everything above £500 per month) for employees where the information is not clear from the Inland Revenue, this means you may be paying more than you should but the PAYE system will correct it in time. . It works like this, using the figures above:

The ££ is the running total you should have paid at the end of each month and to the end of the year:

Month 1 tax (April) £66

Month 2 (May) £132

etc

Month 12 (March) £793

Your employer, when the info comes from the revenue will do the following:

Check your tax code which will probably be 603L (£6035 allowance).

Check the total tax paid to date for the current tax year

If you have overpaid an adjustment will be made in one month to correct the position. Similar if you have underpaid.

So imagine you get to month 10 (January), you should have paid £660 in tax by the end of that month but you have already paid (for example) £760 for the year to date. In that situation your employer would refund you £100 in that month. The following month you would revert to paying £66.

It may sound complex but the PAYE system will constantly adjust your tax to ensure you have paid all tax due by the end of each tax year. So if you get a Christmas bonus the system will correctly calculate the effect on your tax for the whoe year in that particular month. HOWEVER it is only as good as the information YOU give the tax man. If your cicumstances change / are different from the norm the tax office cannot adjust your tax code in the right direction unless you tell them of the changes. Rebates are usually only given at the year end if you've paid too much tax thorugh not telling the tax man about your different circumstances.

Don't forget National Insurance, the mysteries of which I cannot explain but it's about 10%!! A handy quick way to calculate your net income, after tax and NI , is to subtract your personal allowance from your gross for the year. Then divide by three and multiply by two, then divide by twelve for your monthly take home.

ADDED:

Your tax free threshold is not per month it is per year. Say you earn £12000 and started your first job in October. Your gross salary for the year will be £6000, so you will pay no tax on that income over the year. Once your employer has your tax code and will adjust / refund accordingly.

Has you employer asked you to complete a form P46? not P45. If not ask for one, this is then sent to the revenue who will use the information to work out your tax code. This specifically applies to your first job.

[Al]

Paul has explained it pretty well. Once you have filled in your P46 it should be OK but until then they will tax you on 'emergency' which is quite punitive. So get your P46 in quick.

One other thing to watch is that if the Revenue are in any way confused they will stick you on a 'Month/Week 1' basis and you will overpay tax. This should be discovered at the end of the tax year but it could be a year before you get it back. If you get such a coding ring them and tell them it is wrong or get your employer to ring them on your behalf.

This year they got my code wrong 3 times until they finally agreed that the code I had calculated in the first place had been right all the time.

[stuwilky]

NI is 11% of anything above £105 per week (it does change for higher earners slightly). NI is based on a pay period rather than annualised like Income Tax.

And remember that if you have a student loan, those deductions kick in in April if you are earning more than 15k - at 9% of anything above that (gross of tax)

[Bazzanotsogreat]

Good thread this one. I have a query regarding my monthly deductions- I have queried this several times with my own payroll dept who gave me an answer that I wasn’t convinced by. I believe I may be paying too much tax & NI each month:

I have a Tax code of 474L

My monthly earning is £2600

However my Income tax fluctuates between £ 455-£485

NI is around £215-£225 per month

I can’t understand if I am on a salary why there is any fluctuations in my total deductions & when I have spoken to other people at work they also believe my monthly deductions are higher than they should be. Any thoughts?

[stuwilky]

Bazza,

Using those numbers on the software I use for my staff throws out....

£441 PAYE

£235.95 NI

Obviously no idea on any other deductions.

You dont happen to have a "1" after the tax code on your wage slips? What did payroll say?

[Paul]

Bazza, our software says exactly the same as stuwilky's - which is a relief for both of us!! On a monthly basis and assumming your salary is a straight 12 x £2600 you should be doing this:

• Gross £2600

Tax Free £395

Taxable £2205.05

Tax Paid £441.00

N.I £235.95

Total Deductions £676.95

Net Take Home £1923.05

With you tax code you must owe tax for some other reason. Underpayment in previous year, other income etc but that would not account for the fluctuations you report. A salaried person should be receivng the same amount every month.

The IR tax calculator is here and this one is very good as it shows previous years as well in case you over paid in the past - and how you pay less income tax under a Labour government . Get your P60s out and double check

[Al]

Tax code could have been reduced by a number of things.

Tax owed from a previous year as suggested.

Tax due to a company car.

Tax due on a company private health scheme.

Some other income from another source or another taxable perk provided by your company.

The form from the revenue advising you of your tax code should have an explanation. If you have lost it your company should be able to give you a contact number to ring and sort it out.

[Bazzanotsogreat]

Cheers to both Stu ,Paul & AL on the advice.

I dont have a '1' after my tax code and the tax office have never told me that I have underpaid in recent years. Nor do I drive a company car or pay into a private health scheme.

Your advice appears to back up my original point that as a salaried person I should not be seeing any fluctuations in my monthly wage & I am paying too much income tax.

[stuwilky]

There might be two issues bazza, the first is the tax code itself - you should receive a P2 notice every year with the calculation of how they get to the tax code - your standard allowance should result in a coding of 603L

The second is how your employer are applying your tax code to your earnings. As the calculations show that even if the tax code is correct the deductions do not seem to tally.

[American]

Here is an interesting one I hope someone might have run into (maybe Paul, as you hire migrant workers, from what I remember):

I currently have a UK permit and am on the UK payroll of my company. However, they have asked me to spend 3 months in Luxembourg. Because I have no UK residence, I can't get an insurance number until I get one. Should they still be taking out NI deductions? And is what HR is telling me about not being able to get a number, even though I do plan on establishing residence, correct?

[Paul]

Hmm an interestng one. We do hire migrant workers but to be honest I'm not involved in the detail of stuff such as NI for them. Our migrant labour comes from two sources, direct and an employment agency. For the direct employment we provide accomodation and the agency we use does the same, therefore our migrant workers have UK addresses which enable them to get NI numbers. Can't help there.

My own experience, 15 years back, may be relevant. First I am, and always have been, a permanent UK resident and have an NI number almost from birth, it's something we get given very early. For UK natives it just arrives in the mail. Anyway. I worked for a southern Irish company for four years which created some interesting tax issues. I was the sole employee, running the UK sales office in my home. As my employer's company was located outside of the UK the company could not run PAYE and collect / pay tax, in the end with the agreement of the revenue I had to "employ" myself, be paid gross (including employers NI contribution) and then make the deductions and payments to the revenue as though I were the employer. So from the revenue's view I was both the employer and the employee. I was not classed as "self-employed" which has different tax implications in this country.

Sometime after I left the company I talked to the local KPMG office about personal tax and the subject of my previous employment came up. KPMG knew non-UK companies, at that time, were not under any obligation to pay employer's NI, wrote to the relevant office and obtained a refund of four year's employers NI contributions.

In your case, I recall you posting you went straight to Luxemborg from the States? I'd take the view, though I don't know the legality:

You're not a UK resident

You're employed in another country, as I was, so why would you be contributing to the UK scheme

You have no NI number so how can they take NI contributions

You can't access National Health services because you have no NI number and are not UK resident at present

As you have no NI number you can't take advantage of the reciprical arrangements the UK has with other Euro countries

If you have no NI number how can your employer pay those contributions to the government? Where or who would the money be allocated to? these are YOUR contributions deducted by the employer on YOUR behalf

I'm just trying to apply logic there, I think you need to speak to a good accountant. Try not to get sick in the next three months!

[Paul]

Cheers to both Stu ,Paul & AL on the advice.

I dont have a '1' after my tax code and the tax office have never told me that I have underpaid in recent years. Nor do I drive a company car or pay into a private health scheme.

Your advice appears to back up my original point that as a salaried person I should not be seeing any fluctuations in my monthly wage & I am paying too much income tax.

If you have a tax code of 474L it is either wrong or you owe have a taxable income from another source, at least this is what the revenue believe - it could be a variety of things not just a company car. Do you have a private source of income, unearned income from a trust or something? The basic tax code for everyone is 603L and the actual code the revenue issue is worked out from there. I'd say you should find your P60s for recent years, put the information into the link I posted and see what comes up. Then find out what the basic tax code for recent years has been and pop that in and see if the answer is the same. Second I would talk to the tax office, I've had many discussions with them over the years, these days they are very helpful! You need to know why your code is 474L.

[JC4LAB]

http://www.taxationweb.co.uk/forum/

I can really recommend this forum for anyone with tax queries but you will need to register if you have specific questions

[Craigman]

The Inland Revenue will not send the '1' on the end of the tax code through to the employee on the letter with your coding notice. This only appears on the employers copy if it is on a monthly/weekly basis.

Best check with the employer what coding they have been advised.

[stuwilky]

The Inland Revenue will not send the '1' on the end of the tax code through to the employee on the letter with your coding notice. This only appears on the employers copy if it is on a monthly/weekly basis.

Best check with the employer what coding they have been advised.

It should be on the wage slip though.

[American]

Hmm an interestng one. We do hire migrant workers but to be honest I'm not involved in the detail of stuff such as NI for them. Our migrant labour comes from two sources, direct and an employment agency. For the direct employment we provide accomodation and the agency we use does the same, therefore our migrant workers have UK addresses which enable them to get NI numbers. Can't help there.

My own experience, 15 years back, may be relevant. First I am, and always have been, a permanent UK resident and have an NI number almost from birth, it's something we get given very early. For UK natives it just arrives in the mail. Anyway. I worked for a southern Irish company for four years which created some interesting tax issues. I was the sole employee, running the UK sales office in my home. As my employer's company was located outside of the UK the company could not run PAYE and collect / pay tax, in the end with the agreement of the revenue I had to "employ" myself, be paid gross (including employers NI contribution) and then make the deductions and payments to the revenue as though I were the employer. So from the revenue's view I was both the employer and the employee. I was not classed as "self-employed" which has different tax implications in this country.

Sometime after I left the company I talked to the local KPMG office about personal tax and the subject of my previous employment came up. KPMG knew non-UK companies, at that time, were not under any obligation to pay employer's NI, wrote to the relevant office and obtained a refund of four year's employers NI contributions.

In your case, I recall you posting you went straight to Luxemborg from the States? I'd take the view, though I don't know the legality:

You're not a UK resident

You're employed in another country, as I was, so why would you be contributing to the UK scheme

You have no NI number so how can they take NI contributions

You can't access National Health services because you have no NI number and are not UK resident at present

As you have no NI number you can't take advantage of the reciprical arrangements the UK has with other Euro countries

If you have no NI number how can your employer pay those contributions to the government? Where or who would the money be allocated to? these are YOUR contributions deducted by the employer on YOUR behalf

I'm just trying to apply logic there, I think you need to speak to a good accountant. Try not to get sick in the next three months!

Thanks Paul. Supposedly, I would be covered in an emergency over here, but not for standard health coverage. I guess there is a form they fill out to get me on the tax rolls without the NI number, which allow them to take out the deductions and for me to be taxed at the lower rate for this year. They also tell me I'd be able to get coverage if I went over to the UK (though I don't know how much I trust a company that will knowingly let an employee not have coverage due to an assignment they asked me to do).

Looks like the point is moot, as we should be going next week to find a place to live.