2 years back pay taxed at 45%???

Mwd_2

Does anyone any advise on this?

After almost a year of battling with my employer regarding unequal pay they have agreed to increase my salary and back date it to two years.

My gross salary is is circa £26k basic + £4176 (london weighting) = £30176

The back pay comes up to approx £9k of which they have given me 55%, claiming 45% for tax and NI???!! They have also stated that from next month I will continue to be taxed at 40%.

Surely this can not be correct?I would have not been taxed such a high rate had i received the salary I should have been receiving two years ago, nor would my current salary continue to be subjected to a 40% tax rate.

I'd grateful for any advise on this.

Hammyman

Well once you get above £32k, you're on the 40% tax bracket so yes, you should be taxed at the higher rate for the rest of this year however this is only for anything above roughly £615 per week.

I guess from the £9k, your salary should be £30,500+ £4176? You'll have approx £2k of that taxed at 40% in future years.

chrisbur

This tax year you pay 40% tax on taxable earnings over 37400. To get the total earnings you need to add your tax allowance to this figure. You have not said what your tax code is but if it is the normal 647L then add 6475 to the figure. This would give 43875 before 40% tax is due.

Tax is in effect worked out on your average earnings so far in the tax year, as you have had a large lump sum added this has resulted in your average earnings increasing so putting you into the higher band. As the year continues and you get your usual earnings each month, your average will decrease and some possibly all of the tax you paid at 40% will come back to you.

If you can give more details I can give you a better idea of your position. What is needed is Tax code, tax basis ie cumulative or month 1, month number of last salary, total gross to date on last salary and estimate of new monthly salary.

Madjock

chrisbur wrote: »

This tax year you pay 40% tax on taxable earnings over 37400. To get the total earnings you need to add your tax allowance to this figure. You have not said what your tax code is but if it is the normal 647L then add 6475 to the figure. This would give 43875 before 40% tax is due.

Eh?

You don't add anything to the threshold! Anything you earn over the threshold is taxed at the higher level. I hope you don't work for HMRC, though it would go a long way to explaining the monumental !!!! up recently.

NiceGuyEddie_2

Madjock wrote: »

Eh?

You don't add anything to the threshold! Anything you earn over the threshold is taxed at the higher level. I hope you don't work for HMRC, though it would go a long way to explaining the monumental !!!! up recently.

And I hope you stop professing to know about tax!

For the 2010/11 year, the higher rate band of 40% kicks in on taxable earnings over £37,401. This is not the same as total earnings, it is your earnings after deducting the personal allowance.

The personal allowance (assuming no amendments) is £6,475 therefore yes you do add this on to the taxable earnings level to arrive at the figure for total earnings.

Madjock

NiceGuyEddie wrote: »

And I hope you stop professing to know about tax!

For the 2010/11 year, the higher rate band of 40% kicks in on taxable earnings over £37,401. This is not the same as total earnings, it is your earnings after deducting the personal allowance.

The personal allowance (assuming no amendments) is £6,475 therefore yes you do add this on to the taxable earnings level to arrive at the figure for total earnings.

Ok, am I in an alternate reality here? Is it so difficult to understand that you get your personal allowance once?

The personal allowance has been applied to the first £6475 of your earnings, so it's already been allocated within the first £37400 of your earnings. Anything over £37400 is therefore taxed at 40%.

jem16

Madjock wrote: »

Ok, am I in an alternate reality here? Is it so difficult to understand that you get your personal allowance once?

It seems so from your post.

The personal allowance has been applied to the first £6475 of your earnings, so it's already been allocated within the first £37400 of your earnings.

No it hasn't.

Anything over £37400 is therefore taxed at 40%.

First £6475 is tax free
Next £37400 is taxed at 20%
Next £37401 is taxed at 40%

If you still don't believe us put the figure £37600 into this site and tell us how much 40% tax has been taken off. You will find you have to get to £43,876 before any 40% tax is deducted.

http://listentotaxman.com/index.php

Mwd_2

chrisbur wrote: »

This tax year you pay 40% tax on taxable earnings over 37400. To get the total earnings you need to add your tax allowance to this figure. You have not said what your tax code is but if it is the normal 647L then add 6475 to the figure. This would give 43875 before 40% tax is due.

Tax is in effect worked out on your average earnings so far in the tax year, as you have had a large lump sum added this has resulted in your average earnings increasing so putting you into the higher band. As the year continues and you get your usual earnings each month, your average will decrease and some possibly all of the tax you paid at 40% will come back to you.

If you can give more details I can give you a better idea of your position. What is needed is Tax code, tax basis ie cumulative or month 1, month number of last salary, total gross to date on last salary and estimate of new monthly salary.

Thank you all for responding.


Chrisbur - thanks here is the extra info -
Taxcode:647L
Tax basis: ummm how do i find this out?
Month number of last salary 06
Total gross to date on last last salary 2514.67
Estitmate of new gross monthly salary: 2580.08

SarEl

Mwd wrote: »

Thank you all for responding.


Chrisbur - thanks here is the extra info -
Taxcode:647L
Tax basis: ummm how do i find this out?
Month number of last salary 06
Total gross to date on last last salary 2514.67
Estitmate of new gross monthly salary: 2580.08

I really don't do maths - but have to got this right? If your gross salary to date after six months is 2514.67 , then I make it that your annual salary is just over £5k ! That's one hell of a pay rise to £2500 pm

KiKi

Sorry Madjock but they are correct! I didn't realise this, either, until I had to do tax returns for the last six years. There were three years that I thought I was in the 40% bracket, but I wasn't once the personal allowance is taken off. If your salary is £38,000, you won't pay 40% tax at all. The £37,400 level is actually the first *taxable* £37,400, *after* the personal allowance, exactly as jem16 describes above.


For Mwd:

If your salary is £30,176 and your increase is £4,500 per year then you won't be in the 40% for future years. Even in this financial year you won't be in the 40% tax bracket (assuming it's EXACTLY 4500, you miss it by £200!), so yes, you are absolutely correct.

However! Tax is worked out as an average, and receiving a £9k lump sum in one pay packet will make HMRC think that you're suddenly earning a huge amount more. So they will tax you accordingly - and then by the end of the year as it becomes apparent that the £9k was a one-off and you won't be in the 40% tax bracket, you will pay less and less tax and it will all work out correctly by April 5th. (If it doesn't, you can put in a claim for a rebate, but it should work out correctly through PAYE.)

(As an example: in 2008-9 for the first 6 months I was PAYE, on 40% tax. The second 6 months I took an unpaid six month career break. HMRC began to realise that I wasn't being paid, and therefore I would no longer be in the 40% tax bracket come the end of the financial year, so although I wasn't getting a salary, I was receiving tax rebates whilst I was on my break. Come April I had, in total, only paid the lower tax rate.)

It's a simplistic answer but I hope it helps.
KiKi

DVardysShadow

A quick thought. Why was the pay unequal? If it was for one of the statutory discrimination issues [race, gender], you could argue you are legally entitled to the money and I think HMRC would be bound to tax it as additional to the years which it covers. You may even find that this can be done if it is just re-evaluation. Check with HMRC