Delaying overtime claims

matttye · 23 October 2014 at 10:11PM

I have a new job where we have a rota and someone is on call every night. When they get called out to a job out of office hours, they get half of a fixed fee that is paid.

I have heard that some people claim only a certain amount of these claims each month and save any extra for the following month if claiming the extra ones would put them into the 40% tax bracket.

This sounds highly dodgy and I suspect it's illegal but can anyone actually confirm?

Thanks

patanne · 24 October 2014 at 1:36AM

Unless you do it in the last month of the tax year it is pretty pointless. If you pay 40% tax one month and drop below that the next month you get it back. It could actually be an advantage to have it paid say quarterly when you'd pay 40% tax but only 2% NI, then in the next month you'd get your tax back but not be charged the extra NI.

Apart from that, surely the money is better off in your bank sooner, rather than stay in your employer's. So I don't know if it is dodgy but just pointless.

chrisbur · 24 October 2014 at 9:03AM

As patanne says tax unlikely to be affected. National insurance could be though, here there is a monthly rather than an annual allowance.
When earnings go above the UEL £3489 a month the NI goes down from 12% to 2% (figures for not contracted out employees) so if saving up these payments resulted in some falling above the UEL rather than below it a bit of a saving would be possible.

EDIT Just to add I have no idea if this is acceptable to HMRC nor how likely it is that they would spot it(I suspect fairly unlikely)if it was not acceptable.

agrinnall · 24 October 2014 at 12:37PM

I can't imagine it's illegal, if the employer operates a manual overtime system than I'd have thought that it's almost inevitable that not every request will be in by the payroll cut-off date - are you suggesting that failure to meet that date should mean not getting the overtime paid in a later pay?

Anyway, from what chrisbur has suggested then the practice of delaying to prevent paying 40% tax is exactly the wrong thing to do, in fact it would be better to save up claims to ensure that the NI UEL was exceeded as that's the only way there could be a net gain in pay over the course of the year.

ceh209 · 24 October 2014 at 12:57PM

This is exactly what I'm doing at the moment, as the company I work for operates an overtime 'bank' system - you can be paid the overtime in your bank, or take time off in lieu.

I'm saving it all up and requesting a self-made Christmas bonus on which I'll save 10% NI on most of it as my earnings are a little below the monthly £3,489 NI UEL.

That said - my company allows you to do this. Others may have stricter rules e.g. if you don't claim it within a reasonable time, you lose it. But if you're on a cumulative tax code, it shouldn't have any effect in the end.

matttye · 26 October 2014 at 1:35PM

Forgive my ignorance, but I don't see how you would necessarily drop back under the 40% bracket the following month.

I read online that the bracket you are in is worked out by taking your average gross monthly pay for the current tax year and multiplying it by 12. E.g. if you earned £1,000 gross in month 1 and £11,000 gross in month 2, your average gross monthly pay would be £6,000. x12 = £72,000, putting you in the 40% bracket. Is that correct?

Working on the assumption that that is correct... let's say every month you get 12 of these claims. It is possible that claiming 10 could keep you in the lower bracket but 11 would put you in the higher 40% bracket. If you claimed the full amount every month then you'd pay extra tax on any that are above the threshold.

Even if you claimed the extra every other month, it seems there's no guarantee you'd fall back into the 20% bracket if your average pay over the year didn't reduce that much.

I really don't know much at all about tax so I'm probably completely wrong.

Thanks

matttye · 26 October 2014 at 1:37PM

agrinnall wrote: »

I can't imagine it's illegal, if the employer operates a manual overtime system than I'd have thought that it's almost inevitable that not every request will be in by the payroll cut-off date - are you suggesting that failure to meet that date should mean not getting the overtime paid in a later pay?

Anyway, from what chrisbur has suggested then the practice of delaying to prevent paying 40% tax is exactly the wrong thing to do, in fact it would be better to save up claims to ensure that the NI UEL was exceeded as that's the only way there could be a net gain in pay over the course of the year.

No not suggesting it shouldn't be paid - just that the intent of the person is often taken into account in the law.

Genuinely missing the payroll deadline would be understandable, but deliberately holding claims back not to pay extra tax just sounds wrong, doesn't it? Whether it is or not in law is what I'm not sure about, but it just sounds dodgy - to me anyway.

pjread · 26 October 2014 at 1:52PM

matttye wrote: »

Genuinely missing the payroll deadline would be understandable, but deliberately holding claims back not to pay extra tax just sounds wrong, doesn't it? Whether it is or not in law is what I'm not sure about, but it just sounds dodgy - to me anyway.

So long as it's within 'the rules' I think it's fine, nobody needs to structure their affairs so as to pay a maximal amount of tax... Clear evasion is one thing but avoiding the odd few pounds where you can seems sensible. I'm not aware of any issues legally with the approach, since the liability arises at the point of payment from what I recall.

patanne · 26 October 2014 at 1:55PM

It will make no difference to how much tax you pay for the year whether most of your earnings are at the beginning of the year or the end. It only makes a difference to the NI you pay.

I do think that if you all put in for the payments so they are received in time for Xmas, that the New Year will see a letter coming round saying the practice has to stop.

Unless taking it every 2 months say, saves on NI then surely the money is better off with you than your employer. I don't know what HMRCs attitude would be to it though as you are supposed to pay tax on income when it is earned not when it is paid. This is the method they apply to state pensions too.

matttye · 26 October 2014 at 2:01PM

It might not be an issue for me anyway as my base wage is lower than other colleagues' but thanks for your input everyone!

Cheers

Delaying overtime claims

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