Hi
Im after a bit of info. Can anyone tell me how this paye works? I get overtime so my monthly pay changes a bit. This month ive had my bonus which is a 15month one. This looks to have taken me into the next tax band. Will the tax be adjusted next month when i get back to my normal pay or will i get a rebate at the end of the year?
Thanks [img]http://www.fuelly.com/driver/rob2529/range-rover[img/]
04, 4.4V8, Vogue Oslo Blue with LPG.
"You can sleep in your car, BUT you can't race your house!!!!"

If something can't be fixed with a hammer....... You have yourself an electrical fault!

OK, the 2 basic principles are very easy.
1. Tax is cumulative fro the year
2. NI is not cumulative.

Taking income tax first, broadly speaking the payroll software will take the free pay (up to 10600 for most - just add a zero to your tax code) and divide this by 12 (assuming you're monthly paid). You get this amount tax free each month. Then it takes the next band (up to 32010) and divides that by 12 which is what you pay 20% on. If you happen to make more than this in a given month then you will pay 40% on the remainder up to the 150,000 threshold which I assume you aren't going to hit.

Then if you have a standard month next month where you don't use up all the allowance for the 20% band the software will take the bit you paid 40% on in the previous month and set it against the unused part of the 20% band in the next month so you get a 20% tax refund (effectively meaning the 40% bit will be tax free) on that bit which you paid 40% on. i.e. The Payroll software will work in a cumulative way so that come the end of the tax year you are all square.

NI is different. It works in a non cumulative way. You have the lower earnings limit £111 per week, or £508 per month) and you pay NI on everything over that at 12% up to the upper earnings limit of £805 per week or £3690 per month. Over this you pay 2% NI. But it's not cumulative so if you don't use you free pay (below the LEL) one week it does not carry over.

Hope that helps. If you need more send me a PM and I can give you my wife's email - she is Payroll Manager for a large firm and CIPP Masters qualified in Payroll and pensions.

Thats great thank you. [img]http://www.fuelly.com/driver/rob2529/range-rover[img/]
04, 4.4V8, Vogue Oslo Blue with LPG.
"You can sleep in your car, BUT you can't race your house!!!!"

If something can't be fixed with a hammer....... You have yourself an electrical fault!

BUT if you break the 100k threshold you lose your personal allowance

Erm, that's 120k, not 100.

^^

You're correct . my mistake

Do you instantly loose it or is it evaluated on your P60? [img]http://www.fuelly.com/driver/rob2529/range-rover[img/]
04, 4.4V8, Vogue Oslo Blue with LPG.
"You can sleep in your car, BUT you can't race your house!!!!"

If something can't be fixed with a hammer....... You have yourself an electrical fault!

Neither. The "Free Pay" element of your salary is controlled in the payroll software by your tax code. The HMRC tax office would have to issue your payroll department with a new tax code for you, the payroll team would have to change this on your record and then you would lose allowances (free pay)

So, technically speaking, from the RTI (Real Time Information) which your payroll department submit to HMRC when they run the payroll each month it is possible the Tax Office would pick this up and issue a zero tax code. If this happened you would have to call the Tax Office and explain the situation after which they should issue the appropriate tax code for you.

However, in real life the Tax Office are not as efficient as all that (understated diplomatic version) and by the time it was picked up it would be several months down the line when there have been further RTI submissions to level out the bump caused by a one off bonus payment.

BUT.!! If it genuinely would send you over the £120k annual limit for that tax year, and it wasn't picked up, and you didn't notify the Tax Office, you WILL end up with a tax bill to pay the £10600 (or whatever your tax code is) at 40%, so £4240.

mzplcg wrote:

Erm, that's 120k, not 100.

^^

Thats what threw me , and thats exactly what I do , get it in the pension and retain the personal allowance.

I think for every £2 you earn over 100k they take £1 off your allowance until you hit the 120k then the lots gone (in simplistic terms)

We're both on the same page then Ding.

dingg1 wrote:

I think for every £2 you earn over 100k they take £1 off your allowance until you hit the 120k then the lots gone (in simplistic terms)

Sorry, you're mistaken. I know, because I fall into that income bracket, that your personal allowance reduces by £1 for every £2 of income over £100k. HMRC even tell you on your notice of coding. The affect is for those who earn between £100-120k pa their marginal rate of tax is over 60%. That's why it's better to pay into your pension and keep the full value of the PA. Once over £120k you have no PA but your marginal rate drops back to 40%.

And your car allowance is not allowed against it. Mine counts as part of my gross pay.