40% Tax Question?

Saver-Rob

Hi all.

I have asked a similar question in the past, but somebody I know has recently been told the complete opposite to the advice I received in the past.

I work quite a lot of overtime - some months more than others.

My question is, does it matter when and how much I submit my overtime claims?

If, for example I had a claim for £5000 one month. Am I better off splitting it over 2 months, £2500 per month, or all in one go?

I understand x amount is taxed at 40% over a certain yearly income, but is this calculated and deducted monthly or yearly?

Am I any better or worse off in any respect by submitting fewer large claims rather than more frequent smaller ones?

My basic wage is £29,000.

Thanks for all your help.

jem16

Saver-Rob wrote: »

My question is, does it matter when and how much I submit my overtime claims?

If, for example I had a claim for £5000 one month. Am I better off splitting it over 2 months, £2500 per month, or all in one go?

Over the course of the tax year it will make no difference at all with regards to tax. It may make a difference with regard to NI though.

I understand x amount is taxed at 40% over a certain yearly income, but is this calculated and deducted monthly or yearly?

Tax is looked at monthly but with a cumulative tax code, it also takes into account what has already happened in the tax year.

Am I any better or worse off in any respect by submitting fewer large claims rather than more frequent smaller ones?

In respect of tax it would make no difference at all. In respect of NI it can be better to have a higher payment.

So what has the someone you know been told?

Saver-Rob

Thanks very much for that answer.

Well, I had heard that as the tax was calculated monthly you were better off putting in smaller more frequent claims.

I mean, for example, if I were to put a £10,000 claim in this month, would 'the system' assume I was going to be earning that every month and tax me @ 40% for a larger proportion of it rather than slowly dripping it in @ £2000/month.

Does the tax system make assumptions about projected earnings that year when it taxes you each month?

But if you say my take home pay will not be affected whatsoever then that is fine. But I may pay more NI over the course of the year if I put smaller more frequent claims in?

CLAPTON

The total tax paid over the year only depends upon your yearly income although the actual tax paid per month may vary a lot.

In general NI is lower if you receive a large payment one month rather than the same amount evenly spread out. This is because NI is worked out monthly and if your income is over 3454 is only charged at 2% rather than 12%

jem16

Saver-Rob wrote: »

Thanks very much for that answer.

Well, I had heard that as the tax was calculated monthly you were better off putting in smaller more frequent claims.

It can be if you are looking at it simply from a matter of take home pay each month. Over the course of the whole tax year it doesn't matter at all.

I mean, for example, if I were to put a £10,000 claim in this month, would 'the system' assume I was going to be earning that every month and tax me @ 40% for a larger proportion of it rather than slowly dripping it in @ £2000/month.

Much depends on when in the tax year this happens. If it were to happen now you could end up paying more tax in this month and then gradually get it back over the next few months. If the payment happened late in the tax year it may make no great difference as the tax system takes into account what has happened in previous months.

Does the tax system make assumptions about projected earnings that year when it taxes you each month?

It doesn't project earnings. It really looks back over the whole tax year.

But if you say my take home pay will not be affected whatsoever then that is fine. But I may pay more NI over the course of the year if I put smaller more frequent claims in?

Smaller, more frequent claims will even out your take home pay so that it is more regular if that is what you prefer. Larger claims could possibly see a lower amount one month and a higher amount the next.

Clapton has explained the NI.

Saver-Rob

Thank you very much. I may as well just submit my claims as soon as I can in that case. Thanks a lot, both.