Paying too much tax after unemployment?

DUS

Hello,

I have been living in the UK for the last 3 years only, so I am still struggling to understand how HMRC, PAYE and all that figures out the "correct" amount of tax to be paid, so please allow me to ask you a question re my current level of payable tax. I hope you shed some light on the situation. Thank you!

In the current tax year, I was unemployed from 6 April to 5 September 2011. I have been in employment since 6th September.

In the previous 2 years, I was a higher rate tax payer, earning over 60k/year. My current base salary is, however, 20k only with commission payed depending on my performance and results.

To date, I have received a total payment of 13.6k with tax paid at 3.811 and NI at 702.54.

Given that this is the first money I´ve received/earned this tax year, the deductions made seem a bit high to me.

What do you experts thing? Paying approx 4.5k in tax/NI on a total salary of 13.6k sounds an awful lot to me. Or is that the right amount?

Any thoughts and help will be greatly appreciated.

Cheers and best
DUS

PS: When I joined my current employer, I hadn´t received the P45 yet so filled in a P46. Handed in my P45 when I received it and also handed in a letter from HMRC in which they let me know my tax code for the current tax year. Just fyi if this piece of information has any relevance to my question. Thank you!

jem16

DUS wrote: »

In the current tax year, I was unemployed from 6 April to 5 September 2011.

You seem to have a crsytal ball. I assume you mean 2010.

My current base salary is, however, 20k only with commission payed depending on my performance and results.

To date, I have received a total payment of 13.6k with tax paid at 3.811 and NI at 702.54.

What tax code is being used?

Did you receive JSA from April to September?

Did you hand in a P45 or complete a P46?

DUS

jem16 wrote: »

You seem to have a crsytal ball. I assume you mean 2010.

Oh dear.... Yeah, you are right of course.... 2010 it is. :-)

jem16 wrote: »

What tax code is being used?

On the payslip, it says 647LM1.

jem16 wrote: »

Did you receive JSA from April to September?

Oh, yes, I did. Around 1,000 for that period.

jem16 wrote: »

Did you hand in a P45 or complete a P46?

Both, P46 first and when I received the P45, the P45.

DUS

jem16

DUS wrote: »

On the payslip, it says 647LM1.

That's a non-cumulative tax code so you are getting your personal allowances which is good but it's not taking into account the whole tax year.

You say you have been in employement since September 6th yet you have received £13.6k - so around 3 months? That would make each month around £4.4k which would make you a higher rate taxpayer.

How much were you paid each month and how much tax was paid?

Oh, yes, I did. Around 1,000 for that period.

That £1000 is taxable so will be taken into account when your tax code is sorted.

Both, P46 first and when I received the P45, the P45.

DUS

I would be looking to get off the non-cumulative tax code now. When did you hand these in? If it's a while ago I would phone HMRC and find out when they will apply the correct tax code.

DUS

jem16 wrote: »

How much were you paid each month and how much tax was paid?

Base salary Sep - Nov: 1655 / 1916 / 1916
Variable Sept - Nov: 0 / 0 / 8200

Tax paid Sept - Nov: 331* / 275 / 3205
NI paid Sept - Nov: 130 / 158 / 414

* For Sept, the tax code was BRM1

jem16 wrote: »

I would be looking to get off the non-cumulative tax code now. When did you hand these in? If it's a while ago I would phone HMRC and find out when they will apply the correct tax code.

Not 100% sure what you mean. The P46 I signed the during my first week at the new company. The P45 I handed in toward the end of Sept. In a letter dated 13 October, HMRC then wrote that my tax code is 647L.

Hope this makes sense to you......... I am just puzzeled and confused.

DUS

PasturesNew

The "M1" part stands for "Month 1", which is a generic tax code applied when you sign a P46, until the employer has sorted out your correct tax code with the tax office. It means "take off tax as if this person had been earning this much every month this tax year".

When your employer has got the right tax code, all your overpaid tax will be paid back to you, probably in the very next pay packet.

DUS

PasturesNew wrote: »

When your employer has got the right tax code, all your overpaid tax will be paid back to you, probably in the very next pay packet.

I did not notice any back payment in Oct or Nov. Not sure how this would be shown on the payslip, though.

DUS

jem16

DUS wrote: »

Base salary Sep - Nov: 1655 / 1916 / 1916
Variable Sept - Nov: 0 / 0 / 8200

Tax paid Sept - Nov: 331* / 275 / 3205
NI paid Sept - Nov: 130 / 158 / 414

* For Sept, the tax code was BRM1

For September on a BR tax code you had no personal allowances so tax paid was 20%. In October the tax was correct but as it was non-cumulative you have simply paid the aprropriate amount of tax for one month - it hasn't allowed for tax-free alllowances that you didn't get from April to August.

Not 100% sure what you mean. The P46 I signed the during my first week at the new company. The P45 I handed in toward the end of Sept. In a letter dated 13 October, HMRC then wrote that my tax code is 647L.

Why is this tax code not being used by your employer than? HMRC also send your tax code to the employer and once that tax code is used you should see a refund.

647L is a cumulative tax code which takes into account the whole tax year and thus makes sure you get your whole allowances and tax is correct. 647LM1 means that your tax is only being looked at on a monthly basis.

The extra payament you got in November meant you paid higher rate tax for that month. A cumulative code will rework the figures the following month and pay back some of it once it calculates your taxable pay.

I did not notice any back payment in Oct or Nov. Not sure how this would be shown on the payslip, though.

You won't until your employer uses 647L as opposed to 647LM1.

Then you will notice a minus sign next to the tax deducted - this indicates a tax refund.

DUS

This personal allowance of GBP 6.475 or GBP 539.58 per month, given that I will most likely end up being in employment for 7 months in the course of the 2010/11 tax year (Sept - March), shouldn´t I get a higher monthly allowance to adjust to the fact that I won´t have been employed for 12 months this tax year?

If so and if this makes sense, what should I do to get this done?

DUS

DUS

jem16 wrote: »

The extra payament you got in November meant you paid higher rate tax for that month. A cumulative code will rework the figures the following month and pay back some of it once it calculates your taxable pay.



You won't until your employer uses 647L as opposed to 647LM1.

Then you will notice a minus sign next to the tax deducted - this indicates a tax refund.

Aaaah, thank you! So, I will be off to the payroll department first thing tomorrow morning and ask them about the "wrong" tax code.

If I understand you correctly, I should receive a higher payout / expect a reduced amount for tax payable, once they use 647L for my future pay slips, starting next month. Correct?

Cheers,

DUS

jem16

DUS wrote: »

This personal allowance of GBP 6.475 or GBP 539.58 per month, given that I will most likely end up being in employment for 7 months in the course of the 2010/11 tax year (Sept - March), shouldn´t I get a higher monthly allowance to adjust to the fact that I won´t have been employed for 12 months this tax year?

Not entirely. The monthly allowance of £539.58 adds up each month basically. By November ( month 8 ) you are entitled to £4136.66. If your tax code had been 647L as opposed to 647LM1 this is what would have happened so you would have paid less tax that month. With 647LM1 it remains at £539.58.

As you use up those extra allowances your monthly pay will eventually be taxed normally.

If so and if this makes sense, what should I do to get this done?

DUS

By getting the correct 647L tax code used by your employer as I explained.