Am I scuppered with 40% tax for a year...?

Pink_Mink

Hi guys, I wonder if you could help.

I was recently made redundant on 4th May from a job where my basic salary was well under the 40% tax threshold. As part of my redundancy package I received a 'Payment In Lieu of Notice' that pushed me into the 40% tax bracket.

I was lucky enough to start a new job straight away on the 5th May and received my first full pay packet today. Despite my new salary also being well under the higher tax banding I was disappointed to see a huge chunk of tax taken out presumably because of the payment in lieu of notice I received last month?

It's probably a silly question, but is this right? Am I going to have this regular amount of tax deducted out of my salary until April 2012 because of this one off notice payment?

Thanks in advance.

MrsBartolozzi

In my experience you will probably get some of this extra tax back over the coming months. (Or they'll take less from you if you usually pay more than this extra). As it's still early in the tax year, and because the tax office have no way of knowing if the higher amount will be a regular pay packet they have taxed you on the assumption that you will earn this each month for the rest of theyear. Next month when you have a much lower pay packet the tax will be revised and while it may take a couple of months, it should balance out soon enough.

Pink_Mink

Thanks for the response MrsBartolozzi, that does give me a little hope.

My head was kind of getting resigned to the fact that technically I have 'earned' the higher amount in this taxable year, but my heart was saying I only fell into the higher bracket because I was given the boot from my previous employers and wouldn't have received it otherwise!

MrsBartolozzi

You should also realise that the higher tax rate of 40% only applies to the amount you earn over the threshold. If you only earn £50 more only that £50 is taxed at 40% the rest is taxed the same as if you'd not earned that extra £50.

getmore4less

Pink_Mink wrote: »

Hi guys, I wonder if you could help.

I was recently made redundant on 4th May from a job where my basic salary was well under the 40% tax threshold. As part of my redundancy package I received a 'Payment In Lieu of Notice' that pushed me into the 40% tax bracket.

I was lucky enough to start a new job straight away on the 5th May and received my first full pay packet today. Despite my new salary also being well under the higher tax banding I was disappointed to see a huge chunk of tax taken out presumably because of the payment in lieu of notice I received last month?

It's probably a silly question, but is this right? Am I going to have this regular amount of tax deducted out of my salary until April 2012 because of this one off notice payment?

Thanks in advance.

Are you sure?

Current salary well under 40% thats £42475k

You were paid for one month in this tax year, so you got well over 11 month PILON. that is a very long notice period.

What was the old salary?
howe much were you paid PILON?
WHat is the new salary?

total for the year will be 1 month old + 11months new + pilon tax at 40% is what is over £42475.

Pink_Mink

This is where I'm confused, as I thought the higher tax bracket starts at £35,000 for this year and not £42,475 as you've mentioned.

Previous job was £29k plus around £4k pension per year so well under the threshold and contract finished at the start of May.

The PILON and unused holiday was around £9k and was paid to me in this tax year which I thought was triggering me to fall into the higher bracket because my new job is £28k (no extras or benefits or pensions).

Even though I realise I only should pay the 40% on earnings over £35k, the figures I see on my payslip just don't add up (literally!).

Calling HMRC at lunch to see what's going on as I really do not understand all this tax malarkey!

Thanks for your responses guys!

getmore4less

You forgot the personal allowance of £7475

http://www.hmrc.gov.uk/rates/it.htm


Pension money don't count.

The issue is the way PAYE works with large one off payments early in the tax year thye get taxed as if you were going to get them for the rest of the year

It should sort itself out over the next few months as the average monthy comes down.

Make sure you have the correct tax codes and that your P45 was correct.

hcb42

It will even out....dont worry about it

panchenlama

I've had the same issue recently and phoned the tax office. Here's what they told me..

if you have a run rate which indicates you will earn over the amount which changes your tax band for the year you will be deducted that amount amount that month. If next month your pay changes that run rate the amount you pay will be reduced, annualised and any you have already paid will be adjusted into that i.e. the amount you pay in tax over remaining months in the tax year will reduce.

the net effect of this is that you should have higher take home pay over the coming months...

simples...not

diable

You are most probably on emergency tax.