K Codes pls help

aimee0763

Hello All,

I am learning Payroll at the moment to get myself back to work and I am having a great difficulty understanding K codes, I am very new with payroll and just about managing to work out tax and NI, but this K codes had thrown me right off.

I have someone with a salary of £5,400.00 monthly Tax Code K682 from previous year's P45.

I need to work out Gross to Net Pay and work out the Tax Code. From understanding is that the K682 means £6,820 must be added to the total taxable income to ensure the right amount of tax is collected.

Could someone please show me in detailed how I can work this out, do I add the £6,820.00 to £5,400.00 and then with the total amount work out the Tax from that. I am so at a loss and reply would be much appreciated.

many thanks in advance.


aimee
!

fengirl_2

You are correct in stating that £6820 has to be added to the employee's pay in order to get the correct tax, but it is £6820 over the whole year, not in one month.

You look up the tax free pay in table A for code 682 and instead of deducting the amount shown from the monthly pay, you add it on. Then you use table B-D to work out the tax.

The tax tables allow 1/12th of the tax free pay each month - or the extra amount to be taxed in the case of K codes. Therefore, if you are doing May payroll, the amount to add would be 6820/12 x 2 = £1136. This is added to the £5400 pay to make taxable pay in May of £6536.

Your local tax office may run workshops for new employers.

aimee0763

fengirl wrote: »

You are correct in stating that £6820 has to be added to the employee's pay in order to get the correct tax, but it is £6820 over the whole year, not in one month.

You look up the tax free pay in table A for code 682 and instead of deducting the amount shown from the monthly pay, you add it on. Then you use table B-D to work out the tax.

The tax tables allow 1/12th of the tax free pay each month - or the extra amount to be taxed in the case of K codes. Therefore, if you are doing May payroll, the amount to add would be 6820/12 x 2 = £1136. This is added to the £5400 pay to make taxable pay in May of £6536.

Your local tax office may run workshops for new employers.

Hi Fengirl

Thank you very much for your reply and for showing me detailed of how to work out the tax code it is much appreciated. I will search further about taxes and payroll.

many thanks



aimee :T

whatatwit

Hi Aimee, do you know anyone who has a small business and does their own payroll.
HMRC send out a disc each year and this has all the necessary tax tables etc on it.

If you could borrow a copy and load it on your PC, you could set up a ficticious employer and employees and play with changes of code, and circumstances to your hearts content

sweetietot

As the P45 is from the previous year, you need to find out what the person's tax code is for the current year