New tax code for 2007/2008

mstar

ok just being sure.... i was on the 503L tax code but now i am on the 522L which reading on here is correct. However, am i paying to much tax as my salary has come down by a bit :-( does the new tax code allocated to me mean i need to pay MORE tax?? (i.e before i was paying to less??)

[Deleted User]

What it means is that you will have an extra tax free income of about £190.00. In other words, the increase in your tax code means that you can earn upto 5220 per year before you start paying tax.

mstar

thanks lindabea, i am confused (i know) i have a reduction in in my monthly salary, but do i somehow get paid back to me?? as i am confused when you said " extra tax free income of about £190.00" is that a year? as the difference when my tax code was 503L and now 522L is around £60 to my monthly pay

red-chilli

This exact same thing has happened to me, same tax codes and roughly the same reduction in salary. I don't understand why either!

[Deleted User]

mstar wrote: »

thanks lindabea, i am confused (i know) i have a reduction in in my monthly salary, but do i somehow get paid back to me?? as i am confused when you said " extra tax free income of about £190.00" is that a year? as the difference when my tax code was 503L and now 522L is around £60 to my monthly pay

If I undertand you correctly, I think you are saying that your gross income has gone down ie income before tax. That being the case, it is not relevant. You are now paying tax on the income you receive, but your tax allowance is 5220 whereas before 6th April, it was 5030. In other words, you can now earn 5220 without paying tax. For example, if your annual salary is 10000, you pay tax on 10000 - 5220 = 4780. Hope this explains it better, but do get back if it's still not clear.

mstar

hi lindabea, sorry i was not clear my my NET has gone down and the reason being my deductions from Tax has increased e.g before 477.80 (503L) now its 524.09 (522L) my monthly salary is the same so basically i am £46 less then last month :-(

System

mstar wrote: »

hi lindabea, sorry i was not clear my my NET has gone down and the reason being my deductions from Tax has increased e.g before 477.80 (503L) now its 524.09 (522L) my monthly salary is the same so basically i am £46 less then last month :-(

Are those figures the amount of tax deducted or your net income in each month?

kingmonkey

I cant figure out the answer, but I've got a feeling its got to do with the basic tax/higher tax thresholds:
2006/07 2007/08
Personal allowance 5,035 5,225
Starting Rate 10% 10% 0 - 2,150 0 - 2,230
Basic Rate 22% 22% 2,151 - 33,300 2,231 - 34,600
Higher Rate 40% 40% Over 33,300 Over 34,600

ctm_2

When was your last payrise? And what was your gross before and after that payrise.

My guess is that you received a nice payrise during the last tax year, so for the first portion of the 2006-07 tax year you were earning a lower amount, and then for the latter part of the year a higher amount. Now you are just earning the higher amount from the beginning of the year you will pay more tax.

Remember that the tax you pay isn't just worked out on that month (except in the first month obviously) and that it is worked out taking into account your earnings for the whole year.

By my calculations you earnt approx £32220 last year, but your annual salary is probably higher than that amount (but was lower than that amount at the beginning of the last tax year)

Without some definate figures we won't be able to give a definate answer.

Hoddie_2

Is (your latest wage x12) more than your total income for 06/07?

Did you only work for part of 06/07? For instance, if you only worked for 8 months, your 06/07 tax free allowance was spread over 8 wages (629 tax free per month), whereas this year it will be spread over 12 wages (435 tax free per month).

Inexpensive_lady

Right, this is how PAYE is calculated.

Personal allowance 2007-2008: Year = £5225.
Month = (1/12)*5225 = £435.42

Tax month 1 - you are allowed the first £435.42 of your gross salary tax free. Eg you get paid £1000, you get taxed on (1000-435.42=) £564.58 at 22% = £124.21 tax deducted this month.

Tax month 2 - you compare your total earnings to date with the amount of personal allowance received and the tax paid to date.
Eg your gross salary this month is £1200. Personal allowance to date 435.42*2 = 870.84. Total gross salary to date = 2200. Tax due on 2200-870.84= 1329.16 at 22% = 292.42 less tax already paid (292.42-124.21)= 168.21 tax deducted this month.

Tax month 3 - as tax month 2
Eg your gross salary this month = 800.
Personal allowance to date = 3*435.42= 1306.06
Gross salary to date = 3000
Tax due on 3000-1306.06 = 1393.94 at 22% = 306.67
less tax paid to date (306.67-124.21-168.21) = 14.25 tax paid this month

And so on for subsequent months...

You can see that a small variation in salary can have a large impact on PAYE, especially towards the beginning of the tax year.

Hope that helps.