Tax Help

HoneyBunnyPB

I hope somebody can help! I've been working for my company for over 2 years now and I've already discovered several mistakes that my boss and his outsourced accountants/payroll have made regarding pay that I have had to address to get rectified. Suddenly, I seem to be getting taxed a lot more than normal and was wondering if anybody could help?

My basic salary is £26,000 gross per year and I get paid £382 net per week which I believe is correct based on Personal Allowance, tax rates, etc. However, I occasionally get commission and am not sure if this is supposed to have a different tax rate? I receive no more than £10,000 gross worth of commission per year (so my total salary is always less than £36,000 gross per year) and as far as I'm aware this wouldn't put me in the next tax bracket (however again this could be down to a different tax rate for commission?). My last commission for a few months was for about £3200 and I was taxed almost HALF of this amount and thus received £1700.

Can anybody let me know if this is correct or how to figure it out? Thank you!

MrsManda

Do you receive your commission all at once or is it spread over the year? Your personal allowance is spread across the year so you get 1/52th of the allowance each week which you don't pay tax on. Everything you earn over that gets taxed at 20% until you earn £637 (35000/52) above your personal allowance. Everything you earn above that will be taxed at 40%.

Lump sums always get overtaxed when you look at it from a yearly point of view because your personal allowance is spread throughout the year.

You can put the figures for your week's salary into the http://listentotaxman.com/ website and it'll show you what tax you should be paying.

For example if you usually get paid £500 a week and one week you get £3700 you will receive ~£2134

You can reclaim overpaid tax at the end of the financial year

HoneyBunnyPB

Ahhh this makes a lot of sense - thank you. Do you accrue the tax personal allowance each week? In other words, if I don't 'use up' the full 20% amount each week, does the extra that I haven't used get added together before I get bumped into 40% for my lump sum? Also, is there a downside to for my employer if I ask him to pay me the commission weekly instead of in lump sums?

Kimitatsu

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jem16

HoneyBunnyPB wrote: »

Ahhh this makes a lot of sense - thank you. Do you accrue the tax personal allowance each week? In other words, if I don't 'use up' the full 20% amount each week, does the extra that I haven't used get added together before I get bumped into 40% for my lump sum?

Tax is worked cumulatively over the year so in Wk 2, it would be twice what it is in Wk1, minus tax already paid. So certainly if the bonus occurs in March it would not attract the 40% tax if your yearly total of bonus plus salary didn't warrant it.

However with a bonus paid earlier it may attract the 40% tax in one week but over the next few weeks you would end up paying less tax than normal as it adjusts.

HoneyBunnyPB

Is this the opposite of what previously said in the discussion? Now I'm confused!

jem16

HoneyBunnyPB wrote: »

Is this the opposite of what previously said in the discussion? Now I'm confused!

What was said earlier is partly correct as it really depends on the timing of the bonus payment.

For example if it's the 4th week of the year, the first £575 is tax free, the next £2692.31 is at 20%, after that it's 40% until you get to the 50% bracket.

In Wk 16 it's £2300 tax free, the next £10,769.24 at 20%, above that 40%.

Tax already paid would then be subtracted from each and that would be the amount of tax to be paid.

This would be what would normally happen on a cumulative tax code.

chrisbur

To check if your tax is correct or not and to properly explain it actual figures are needed.

What is needed is details from the payslip on which you recieved this extra payment. The week number or date of payment the gross payment the tax paid the NI paid and any other deductions, along with the tax code number and the basis it is applied on and your total gross pay to date and tax paid to date.

With this information your tax can be checked.

HoneyBunnyPB

Ok, but if more is taken because the commission is early in the year and then I don't get as much later, it will start to even out? My boss pays me on an irregular schedule due to his travel and I think this messes with my taxes as well. For example, I believe last year (in one calendar year) I actually got about £14,000 gross commission and this year I'll get around £6000 but it really should have been 10k and 10k. Thank you for your help - it's made it much clearer for me!

HoneyBunnyPB

It should be on my next payslip - I just received notice of what the gross and net amounts are from my boss so hopefully the payslip with the full details will come through soon. Nothing is 'normal' in my office which is what has been causing the problems.

jem16

HoneyBunnyPB wrote: »

Ok, but if more is taken because the commission is early in the year and then I don't get as much later, it will start to even out?

It will sort itself out each week as it adjusts, yes.

At the end of the year you will have paid the correct tax regardless.

As chrisbur says, if you want it checked or explained more clearly you need to supply the relevant info.