Tax & claiming overtime...

Saver-Rob

Hi all.

I have a question tax and claiming overtime.

I earn £2159/month basic before tax.

This month I have earned £2550 in overtime before tax, so a total of £4709 when you include my basic salary before tax.

When I am taxed on my earnings, is it worked out on a monthly basis? As in, if I submitted my overtime claim in one go this month and was taxed on the total of £4709, would I be taxed at the normal 20% rate? I have heard some people say that it is worked out on a monthly basis, i.e they will look at that large payment this month and project that I will be a higher rate taxpayer this year and therefore charge me 40% tax.

Is this correct? Does it make a difference if I claim the whole lot in this months pay or try and stagger it over a couple of months? Will I pay more or less tax if I do anything differently?

Thanks alot for any help.

jem16

Saver-Rob wrote: »

I have heard some people say that it is worked out on a monthly basis, i.e they will look at that large payment this month and project that I will be a higher rate taxpayer this year and therefore charge me 40% tax.

That is correct. Each month you get a proportion of your allowances. So in your case you will get some tax free, some at 20% and some at 40%.

Is this correct? Does it make a difference if I claim the whole lot in this months pay or try and stagger it over a couple of months? Will I pay more or less tax if I do anything differently?

Thanks alot for any help.

It won't matter in the long run. If you pay more tax this month because of the overtime it will gradually be clawed back over the following months. At the end of the year you will have paid exactly the same amount of tax.

Saver-Rob

Thanks alot for your post. I am still a little confused. At what figure would they charge 40% tax on my earnings (on a monthly basis).

Also, for example if I did not do any more overtime this year and my yearly earnings were under the 40% bracket, how would it be justified to charge me 40% on any of this months figure?

jem16

Saver-Rob wrote: »

Thanks alot for your post. I am still a little confused. At what figure would they charge 40% tax on my earnings (on a monthly basis).

For example in April, first month of the tax year, you would pay tax as follows; ( based on £4709)

First £622.91 ( £7475/12) tax free.
Next £2916.66 at 20%
Next £1169.43 at 40%

Next month those amounts double so if you went back to £2159 (therefore a cumulative total of £6868 for the 2 months it would be;

First £1245.82 tax free
Next £5833.32 at 20%
Next £788.86 at 40%

and so on.

As the system recalculates, it sees you have paid too much tax in April and adjusts that in May so that you get some of that overpaid tax back. If you continue to stay at the lower rate you will get more of your overpaid tax back each subsequent month.

Also, for example if I did not do any more overtime this year and my yearly earnings were under the 40% bracket, how would it be justified to charge me 40% on any of this months figure?

Becasue in that one month you went into the 40% tax bracket.

John_Pierpoint

So next February you look at your taxable pay to date and tax deducted and do your sums for what march is likely to be.
If you find yourself paying some 40% tax you might consider asking your payroll people to bung some or all of your March salary into your pension fund; to bring your year end tax able pay within the 20% band.

Decisions like that depend on your personal circumstances.

Don't forget that your 40% liability is on ALL your taxable income. This includes the interest on your rainy day savings account if it is not an ISA.

Saver-Rob

Thanks for replies. I cant pretend I fully understand how and why but I will just accept that overall it makes no difference whether I spread these large amounts out over the course of months or have it all in one go. That was my main aim to find out so thats good!