PAYE question

LEP

In April I will earn taxable income of 2642 (pro rata £31704)

In May I will earn taxable income of £3957 (pro rata £47484)

Clearly in May I am pro-rata taken into the 40% tax bracket but I was well below it in April so do HMRC look at this and not tax me at 40% on earnings above £3454 (pro rate £41450) as I have some sort of 20% allowance carried forward from April?

Hope this makes sense!

Thanks

nomunnofun

You are correct. The tax tables effectively average your salary for the whole year. By the end of May you will have £6602 taxable earnings to date, which would average out at £39612 - below the higher rate threshold. the higher rate tax will be 'repaid' in May by reducing your overall tax for that month.

molerat

The allowances works on a cumulative basis. In April you will be able to earn £787.42 tax free and a further £2916.66 taxed at 20%. By May you will be able to have earned a total for Apr & May of £1574.84 tax free and a further £5833.33 taxed at 20%. £2642 + £3957 = £6599 which is below the total by May of £7408 for 20% tax. This is all based on your tax code being 944 and of course going forward the situation may change if you continue to earn more.