Help to understand basic tax expenses.

beadgirl87

Hi,
I have had 3 jobs this year. I was working part time until July and full time since then.
I changed jobs in July and again in October.
I have been paying tax on the job I started in October, Oct (£163.60) Nov (£154.40).
For the whole year I have only earnt £7111.55. So I thought I shouldn't pay any tax until I reach £7475.
I phoned the tax office and they seem to think that I havn't overpaid tax. The woman confused me alot and started talking about an allowance of up to £4000 and something and then you get taxed 20p for every £1 on top of that. Also that they are assumming I will stay with this current job until the end of the tax year. She mentioned that the tax should only be about £75 per month, but couldn't explain why mine was so high for the last 2 months.
I also explained to her that as for half the year I was only earning £300 a month I can't see how I should be paying so much now. I am also dyslexic and I got confused with all these numbers she was quoting at me.
I have since looked on the HMRC website and it states everywhere that you have a personal allowance of £7475 which is always tax free.
My tax code is 747L and has been for the whole year.
My gross taxable income is £7111.55
PAYE tax £425
NIC £109.62
I have every payslip I have been given if you need more information. Also I have been a full time student from 2006-2010. Worked part time since July 2009-july 11. Then switched jobs as mentioned above. Never been on any benefits.

what I thought had happened was as I had been part time for half the year as soon as I started earning full time wages they have multiplied the new monthly salery to come up with an income higher than the personal allowance, but doesn't take into account that I have only earned this much for 2 months and not 12 months?
Should I call back and talk to someone else for them to explain it to me again?
She also said they need my employers PAYE number to record it for some reason.
Any help appreciated, I am very confused

CLAPTON

well it works like this

you get a yearly personal allowance of 7475
this allowance is spread over the year so each month you get 7475/12 = 623 approximately

so if the 1st month (April) you can earn 623 before paying any tax; if you don't use the full allowance that month because your earning are too low then it is carried over to the next month


so you say you have earned 7111 this year
is that up to end of November (which would be 8 months ) or to the end of December which would be 9 months

any way it works out like this
if the earnings are to the end of November you can earn 623 x 8 = 4983 before any tax so if your case you would pay
20% of (7111-4983) = 20% of 2127 = £425 in tax to the end of November

what date was the total earnings to?
and also does your tax code have any letters like M1 or W1 after it

bobthedambuilder

If you are really not tax savvy, perhaps you don't realise that the tax year runs from April 6 to April 5 of the next calendar year. If your statement that you've earned £7111 this year refers to the last calendar year ( Jan - Dec 2011), you're counting the wrong months.

Otherwise, Clapton's post is right. HMRC look at your monthly earnings from April onward and if the average indicates that you are likely to earn more than the personal allowance before the following April, they will tax you accordingly in each month. They don't take nothing until you've reached the allowance.

beadgirl87

Thank you for your replies.
It is up to month 9 December.
The figures I quoted as how much I have earnt this year are from my payslips, so I am guessing it means this tax year from April.
There are no extra letters after my tax code, the woman kept asking me if there was.
I am still a bit confused. So there is a monthly allowance of £623 per month, and then if you go over that in that month you are taxed 20% of the extra.

What happens if you earn nothing one month, but over the limit the next month, do they not balance out? eg, say you don't earn any money for 10 months, then in month 11, you earn £1000, you have to pay tax on the £377 which is over the allowance for the month? Even though you are under the annual limit?

So is it really an allowance of £623 per month which adds up to a total of £7475 a year. Not £7475 for the year regardless of month fluctuations?
Sorry, I'm really trying to understand this.

CLAPTON

it doesn't matter how the salary is spread out; so even if there was no income one month the overall tax only depends upon the total for the year

on you payslip there ought to be a month or period number; what does it say?

beadgirl87

Payslip, 30/11/2011, Month no:8 . that is where I got the info listed on the 1st post.
Sorry I was getting confused as I was paid the money in December.

beadgirl87

CLAPTON wrote: »

it doesn't matter how the salary is spread out; so even if there was no income one month the overall tax only depends upon the total for the year

on you payslip there ought to be a month or period number; what does it say?

If that is the case, then surely that as I have earn 7111.55 that is under the annual allowance, so shouldn't have been taxed at all yet?
I guess after next month, I should be paying tax as I will have then reached the annual allowance.

CLAPTON

beadgirl87 wrote: »

If that is the case, then surely that as I have earn 7111.55 that is under the annual allowance, so shouldn't have been taxed at all yet?
I guess after next month, I should be paying tax as I will have then reached the annual allowance.

whats the month number on the payslip


the way it works is like this

1st month your allowance is 623
2nd month you year to date total allowance is 2 x 623
3th month .................................. is 3 x 623
4th month .....................................is 4 x 623
....

8th month ......................................8 x 623= 4,983
9th month .......................................9 x 623 = 5,606

so if say in month 3 you earn nothing then they still give you that months allowance in the following month

so as you have 7111 earnings to date you will pay some tax ; the allowance will be either 4,983 or 5,606 depending upon the month number on the payslip that shows earning to date of 7,111


what's the month number ?

beadgirl87

the month number is 8.

CLAPTON

ok so we have
pay to date of 7111
tax free allowance of 8 x 823 = 4.983

so you pay 20% tax on (7111-4,983) = 20% of 2,127 = £425 as total tax to date