Confused about my tax

burtonlee

I will try keep this as short as possible....
....I work as a car salesman (please dont hate) and over the year my tax is within the 20% threshold, however after particularly good sales from September my October wage will exceed this and be in the 40% threshold. My tax code is 383L and this month my net pay will be £4500. will i have to pay 40% on this amount and how much?

princessdon

Why is your TC so low? Do you have a lot of benefits on your p11d?

It isn't worked out on your "october wage".

Basically once you reach the 40% threshold all money over than is taxed at 40%.

Eg on an 8010 coding (the normal) the first £700 (ish) is tax free, the next £2800 (ish) is 20%, the remaining is 40%.

burtonlee

my TC is low due to company car provided with job.

So what you're saying is that when I earn over £34,371 during the tax year I will then start paying 40%?

So therefore even though £4500 annualised is over the threshold I will only pay based on 20%

Sorry, I am useless in relation to tax.

easy

The tax calculation is averaged out over the year. this is how it works.
If you earn less than £8,105 per year (£675.42 per month) you don’t pay any tax at all (this figure is amended by your tax code. in your case it's adjusted down to 3800 I think).

If you earn more than that, but less than £42,475 per year, you pay 20% tax on the earning ABOVE £8105. Sooooo, as an example if you earned £24000 per year (£2000 per month) you would pay 20% tax on £15895 over the year - £3197, which they would divide over the 12 months.

If you earn MORE than 42475 over the year, you pay 40% tax on the money OVER that amount.
So if you earn say £50,000, you pay NO tax on the first £8105, 20% on the next £34,370, and 40% of the top £7,525 . so the total amount of tax (PAYE) you would pay on £50,000 would be £8,379 (which doesn’t seem too bad really). You will also pay National insurance – and I can demonstrate that too if it isn’t too boring.
Now the govt provides your employer with complicated calculation tools to help divide up your salary over the year. If you regularly get equal amounts it’s easy, but as in your case, it becomes more complicated when the pay can vary in different months. Without knowing what you have earned so far this year (and what your tax code is) , it’s impossible to say if any of your wages this month would be taxed at 40%. But if it is, then you get less commission in future months, the following months calculation will put that right.
Does that make sense ?

burtonlee

YTD my gross pay totals £12k and a tax code of 383L

So i think i am correct in saying the 40% rule will not affect my October pay?

Thanks to both for advice so far

zagfles

burtonlee wrote: »

YTD my gross pay totals £12k and a tax code of 383L

So i think i am correct in saying the 40% rule will not affect my October pay?

Thanks to both for advice so far

No you won't pay any 40%. Assuming you tax code is as stated without a W1 or M1 after it.

princessdon

The best way to describe how it works is to think of a spreadsheet. (which is how payrolls work, just more complicated).

If you are employed and they expect you to earn say £30K. They would take your tax free allowance and spread this accross each month, they then do the same with your 20% allowance.

So say your "normal salary" was £40K. An unexpected bonus came in August of £5K. You don't pay the 40% on that bonus, it would then just affect your tax for future months. So hypothetically if you needed to pay £600 in tax due to that bonus taking you over the threshold PA, it would spread over the remaining months so you'd pay £100 for those months - so the £600 would be £100 x 6, not £600 in one pay packet.

Unless you get more bonusus to take your over the amount £37ishK over the tax year for you then you will never pay 40% tax. It is over the year not per month.

If you continue to do well and get bonuses then you may pay tax, but it is then calculated over the "remaining months".

burtonlee

thankyou all, i think i have it now.

gross £4500
tax free allowance (383L TC) £320
so i will be taxed on £4180
TAX AND NI on £4180 = £1033.20

NET PAY £3786.80 ???

zagfles

burtonlee wrote: »

thankyou all, i think i have it now.

gross £4500
tax free allowance (383L TC) £320
so i will be taxed on £4180
TAX AND NI on £4180 = £1033.20

NET PAY £3786.80 ???

No you'll pay £836 tax and £368 NI. Total £1204. So net £3296.

NI doesn't use your tax code. You pay NI at 12% on income between £633 and £3540 (approx) and 2% on income above that. So you actually save a bit of NI compared to if your income was spread over the year.