Am I paying too much income tax?

nick112_2

Hey everyone I hope you can help me because I am concerned that I am paying too much income tax. The facts are as follows and are in as much detail as possible.

Basically i'm 19 and in the summer of this year I got a temporary placement at a company for roughly 3 months between my years at University to get some extra money. When I got my first payslip I was charged tax which I shouldn't have been because I am a studnet and also I will be earning under the minimum band for the tax year because I don't intend on getting any more jobs this next year or so to concentrate on studies.

I spoke to my agency and was told I was on the wrong tax code, eventually I was put on the code 0543L/1. This is the code that appeared on my weekly pay slips. For example if my gross earnings in a week was £219.30 I would come out with £188.69 in net pay, which is a difference of £30.61.

On my pay slip I have salary adjustments which apaprently are to avoid paying more income tax. So using the example I am doing £45.37 was taken off me as well as my tax and National Insurance which amounted to £18.98 in total. This tax and NI is based on a taxable pay of £173.93 because this is what you get after taking my gross and subtracting the £45.37 'salary adjustment'.

Taking both of these 'adjustment' into consideration it comes to a total of £64.35. I then get added back on £ 33.74 which is a tax free expense. This brings my wage up to £188.69 net pay.

What I ultimately don't understand is why they would bother taking money off me to avoid me paying less tax when really I am worse off in the long run because after taking the £64.35 off me then giving me back £33.74 in tax free expenses there is a deficit of £11.63. This deficit is varies from about £10 a week to £100.

To make matters more complicated for myself the tax code on my payslips are 0543L/1 whereas the tax code on my P45 is 0603L X.

I hope I have provided enough information in order for someone to help me and not presented it in a way that is too complicated.

Hope to get replies from someone.

Kind Regards Nick.

dzug1

603L is your correct tax code from September and your current employer should use it once he has processed your P45. That should lead to any past overpayments being refunded and future amounts being right

I say 'should' not being entirely sure what the X after your code means.

543L was right at the time (it increased in September) but I can't see why you should have been on wk 1 basis

Icesaver

HMRC website has a student tax checker http://stccalculator.hmrc.gov.uk/UserDetails.aspx might be of use to you?

trevormax

(long answer coming)

First off I should tell you that the myth that studends are exempt from paying tax should be ignored. EVERYONE is liable to tax if they earn enough money, including students, people working full time, 98 year old pensioners, even a 1 year old baby if they earn enough. The reason many studends dont pay tax is as you have pointed out, because they dont earn enough to go over their tax free allowance.

Second, The tax code you have told us was used, 543L/1, is whats known as a week 1 or month 1 code (sometimes referred to as an emergency code). This code pretends that it is the first week or month of the tax year (hence the term week/month 1 code). The result of this is that you are given the amount of tax free pay you would normally receive in the first week of month (£104 if paid weekly or £453 if paid monthly). This is a standard procedure for all people starting a new job. The reason this code is used is because your new employer has no way of knowing how much tax free pay you are entitled to until HMRC tell them, so they stick you on this "emergency" code. Then once they have been told by HMRC, they can adjust your tax to ensure you have paid the correct amount.

As you were on this emergency code and you earned over £104 in a week, you are taxable at 20% on all earnings over this amount, so if you are paid £219 per week, £219 less £104 = £115 taxable at 20% which = £23 tax due. Once HMRC send the correct cumulative code to your employer, you would no doubt get a refund of overpaid tax, and once you finish employment, if you have no intention of returning to work, you can contact HMRC and ask them to do an in year assessment to get any more tax you have overpaid (likely all of it back).

NI is very much the same, with the same NI free amount of £105 per week. The main difference is you only pay 11% on NI. I'm not 100% sure on reclaiming NI overpayments so would suggest you contact them on the number in this HMRC link http://search2.hmrc.gov.uk/kbroker/hmrc/contactus/search.ladv?sr=0&as=1&cs=ISO-8859-1&sc=hmrc&sf=&sm=0&nh=50&ha=34&tx0=370290&fl0=__dsid:&tx1=2041&raction=view

With regards the "adjustments" your employer made, the reason they have provided you sounds odd. It sounds as if your agency is using "Temporary workplace exemption" rules which allows them to pay you some expenses like travel expenses instead of paying you wages. This would have the benefit of reducing your tax and NIC liability meaning you pay less. BUT they should not have adjusted your pay to do this. I would suggest you speak to them to get a clearer picture of what the adjustment is.

To your final point, the basic tax codes were 543L for everyone up until September 08 when the government increased them to 603L in the wake of the scandal surrounding the removal of the lower rate band, so 543L was the correct code when you had your pay slips. However, the X after your code means you are still on a week 1 code. If you are still working, you should contact your tax office and ask them to issue your employer with a cumulative code which will result in your employer giving you a repayment. If you are not working, contact your tax office and ask for an in year repayment as you no longer work.

Sorry for the long answer but I wanted to answer all of your questions. Hope it helps.

nick112_2

The studnet tax checker was helpful I think. I did say that I had paid too much tax. However, the dispute with my job agency is that the amounts they take off me in total far exceed the total amount of tax they have 'stated'. They tell me I am part of a travel scheme which gives me back tax free expenses, but as I earned under the threshold amount for the tax year surely I would have been better off paying all the tax to start with and then claiming it all back. Instead of having hidden deductions inbetween. I wouldn't have paid tax at all if they hadn't messed up my tax exemption form in the first place.

I have now sent a second letter to the head office to my agency for further clarification becuase as you can tell I am not convinced or happy.

nick112_2

Trevormax you have helped me greatly. I now understand the tax codes and the amounts they tax me and also my NIC. Also you were right in saying that they gave me tax free travel expenses out of my wages. If they weren't meant to do this I will take this issue up with them.

I just think that they are taking, not only me, but most likey all of there employees for a ride. It is unfortunate that not everyone has questioned it like it. It all seems a bit weird to use their over complicated travel scheme as an explanation for disappearing amounts of money.

Thank you for your help Trevormax

trevormax

Happy to help. Dont forget to speak to your tax office. It is very likely you are due a tax refund if your earnings are low. They will also help to get you onto the correct code preventing you from overpaying tax in the future. If you're not sure which tax office to call, it depends on the first 3 numbers of your employer reference i.e. 948/gz1234 - the 948 is the tax office for this reference.

System

Icesaver wrote: »

HMRC website has a student tax checker http://stccalculator.hmrc.gov.uk/UserDetails.aspx might be of use to you?

Please do not use the student tax checker at the moment as my colleagues and I today discovered that in updating the facility HMRC have removed the 10% tax band for all years. This means calculations for 02/03, 03/04, 04/05, 05/06, 06/07 and 07/08 will wrong and if you proceed to the summary of the calculation you will see that the 10% band has been ignored. The only year which should be correct is 08/09. :huh: