PAYE Changes each month

CanonMan_2

I understand that the more you earn, the more tax and national insurance you pay. But since putting my budget spreadsheet together I have realized that the percentage of tax and national insurance I pay each month changes depending on how much I earn.

Is this usual?

Ali-OK

I'm by no means qualified on this stuff, but I think NI is a percentage of earnings, so yes, that would change if your gross changes.

Tax is done by brackets - x amount free (your allowance), then at 10%, 20% and 40%.

If you're close to the 40% bracket on a lower gross month, you may hit it on a higher month and therefore pay more. If you go lower gross again, you'll pay none at 40%, and get a bit back on the 20%. I think! Been in this situation myself during this tax year and still trying to understand it!

Hopefully someone will come along and clarify/articulate things for you!

PS. How did your Lloyds visit go? Fancy updating your thread on it?

heppy23

Apparently it's all to do with rounding up and down and the number of days in the month.
I get paid weekly and the figures fluctuate by a few pence.
I run the payroll at work and I queried it and was given the explanation above.

Chortle_2

Yes. Tax isn't calculated at all on a set amount of your salary each year (based on your tax code). When your payroll dept work out your pay for the period, this tax-free allowance is spread across the year (based on average earnings, not a set 1/12th p/month) and so the % tax paid each month can and does vary slightly if you're on a variable wage.

Highly simplified example (completely made up numbers, for ease of use!)

You earn £200 in period 1. Of this, the first £50 is tax free. You pay 25% tax, but only on £150. This comes to £37.50. As a % of your total pay, this is around 18.7%

You earn £250 in period 2. Of this, the first £50 is tax free. You pay 25% tax, but only on £200. This comes to £50. As a % of your total pay, this is around 20%

So, although both months, you've paid 25% tax, as a % of your total pay, it varies. In reality, its even more complicated than that, as NI is also subject to 'levels', and is charged at different rates for different levels of pay.

Its slightly easier if your wages never change, but if they fluctuate, the % tax your pay will alter slightly as you go.

CanonMan_2

Thanks everyone, as you said, it is only slightly I just wondered if it was normal.
I'm going to ask for a pay review next week where I will ask for an even monthly salary and i'll do the same hours i've been doing for the past 12 months. That way I will know what i'm getting each month without having to wait for my pay slip, should make my planning easier.

heppy23

CanonMan wrote:

Thanks everyone, as you said, it is only slightly I just wondered if it was normal.
I'm going to ask for a pay review next week where I will ask for an even monthly salary and i'll do the same hours i've been doing for the past 12 months. That way I will know what i'm getting each month without having to wait for my pay slip, should make my planning easier.

It will still fluctuate slightly but should be by no more than a few pounds at most.