Graduate Tax Exemption

happysaver

I graduated last summer and got a temp job through Reed paying £7ph. After about 3 months in the job I received a tax rebate with my normal pay and was not charged PAYE from then on.

I called up the agency who explained that I would not pay PAYE until I earnt over £17k per annum. They also mentioned that this was limited to my first job.

I've since got a new job, and now pay tax as normal. I've heard nothing from the tax man so assume what the agency told me was true.

My girlfriend graduated this year and would like to know how to go about claiming her tax back. She works at Halfords and no one their had a clue what I'm on about!

Any advice would be a great help to my girlfriend, and no doubt anyone else in her position who doesn't know about these tax rules.

jem16

Can't say I've ever heard of this either. Everybody, including children has a tax fee allowance. Last year it was about £4850. I can only assume that as you only worked part of the year last year, you earned less than this and therefore once your proper tax code was worked out, as opposed to emergency code, you were entitled to a rebate.

happysaver

It does seem really strange I agree. The way my agency described it was that it was a way to recover from debt after graduating and the amount of £17,000 per annum was mentioned as a ceiling. This does seem to make very little sense since clearly it would make no sense to earn £18,000- which is quite a typical graduate starting salary.

I've not got my old payslips to hand but did work for atleast 7 months so would have earnt more than £4850, more like £7000.

It does possibly point to the agency doing something a bit sneaky to keep staff happy. For anyone interested I was getting paid £245 a week before tax and taking home about £230 after NI deductions.

Information on what anyone thinks was going on would be gratefully recieved.

MarkyMarkD

There's no such thing.

But if you don't start work until September (say) in the tax year of graduation, you will get a full year of tax allowance with only half a year of taxable income. So effectively you can earn around £10k (twice the normal personal tax allowance) PER ANNUM without paying tax.

This would only get up to the £17k a year they are talking about if you didn't start work until January-ish.

When you start your first job, you will often pay tax on an emergency code, week 1 (non-cumulative) basis, which will mean you'll pay tax right away. When they get the tax code right, maybe after a month or three, you'll get a rebate because you'll go onto a cumulative basis. It's quite common at this stage to get back everything you've paid to date.

Later in the tax year, your cumulative earnings will match your cumulative tax allowances and you'll start paying tax again. But if you've changed jobs in the interim, you might go through the emergency tax loop again.

To give some numbers:

Say you start work on 6 September (5 months into the tax year) and earn £12,000 per annum = £1k per month.

Your tax allowance is £5,035 = £420 per month (ish).

You're on emergency tax basis for the first 2 months (say) meaning that they tax you on everything over £420 at 10% on £179 and 22% on the rest = £106 of tax a month. So by the end of month 2 you've paid £212 in tax.

In month 3, they get your tax code sorted, and you go onto a cumulative basis. By the end of month 3, you've had 8 months of tax allowance (6 April - 5 December) which is £3,360, but you've only earned £3,000. So you get all your tax back, and cumulatively you've paid £NIL in tax.

In month 4, you are still on cumulative basis but your income starts outstripping your allowances, and you have to pay some tax: you've earned £4k and cumulative allowances are only £3,780, so £220 is taxable (all at 10% this time). So you pay £22 in tax.

And so it goes on. Gradually more income will get taxed at 10%, and then (if you earned enough) some at 22% or even 40%. On the numbers in my example, by the end of the tax year you'll have earned £7,000 and been taxed at 0% on £5,035 and 10% on the remaining £1,965, but not quite earned enough to pay at 22%.

jem16

happysaver wrote:

I've not got my old payslips to hand but did work for atleast 7 months so would have earnt more than £4850, more like £7000.

So you should have paid tax of around £222 in that year. What probably happened was that for the first 3 months you were taxed too highly(perhaps at the full 22%) and then given a rebate once your code was worked out.

Have a look at your payslips and work out how much tax you paid minus your rebate and see what it comes to.

Mikeyorks

happysaver wrote:

She works at Halfords and no one their had a clue what I'm on about!

I'm not surprised. As the previous, bar one, post - there's no such thing.

Sounds like a misunderstanding with Reed - as HMRC police temp agencies quite assiduously and they're unlikely to get away with manipulating PAYE (knowingly or otherwise) for long.

The only 'graduate' limit I'm aware of in that vicinity - is the £15k before you start repaying any Student Loan? And that applies from the April following graduation.

MarkyMarkD

Yes, I also thought they were probably talking about the student loan threshold.