PILON and 40% tax

Linton

areed78 wrote: »

Thanks - If I overpay will I have to wait until April 14 - to reclaim a tax rebate ?

Not necessarily. If after you receive your taxed PILON you work elsewhere in the same tax year, you will pay less tax by PAYE until your total tax to date ties in with your total income.

Jlbjones

Hi

Apologies for extending a long thread - I don't know how to begin a fresh one!

I have a query concerning the amount of tax I've just paid, as revealed on my last payslip for end of July (when I left my job owing to redundancy).

I was entitled to take PILON, through my own choice, for 5 months, having worked only 1 month of notice out of 6.

I am on tax code 944L. Salary 27,696. I was therefore given £11691.76 as PILON on top of my basic pay 2308.00 and some back pay £68.49, totalling 14068.25.

Now, I'm not sure if I am confusing things, but I would expect my PILON to be taxed at the usual 20% rate (after the £9440 non-taxable allowance).

Therefore, I cannot understand why I have been taxed £3940.40 for these earnings of £14068.25. For 2013-14 the total tax paid is £4758.40, according to my wage slip. Yet, according to my calculations on the HMRC checker, I ought to be granted £2,461.40 back.

Does this sound right? I'm not on anything more than a 20% tax rate, but wondered if I have somehow slipped into emergency tax, bearing in mind the code 944L.

Unfortunately, I've no human to ask. I've tried calling HMRC on their ridiculously overpriced phoneline, which kept telling me (during 'contact hours') I should put the phone down because the line was too busy, incurring a great cost of repeatedly calling (and never getting through!). And there's no email address to contact them that way. A letter will take time to be processed, and I expect it will not be read until at least a fortnight. I thought I might get more sense out of a moonlighting HMRC advisor on this site!

Many thanks

Savvy_Sue

I am not a moonlighting HMRC person, but I think the way it works is that each month, the calculations are based on the assumption that what you've earned this month is what you're going to earn next month and every other month until the end of the tax year.

So, if you multiply this month's pay by 8 (August - March) and add it to your previous total for the year (let's say 1/4 of £27696 for Apr - June, plus your inflated total for July), does that look like you'd be in the 40% tax bracket? It's too late for me to do actual hard sums tonight, but my rough estimate says that's what's happened.

Now, tell us what your income sources are now, and we'll probably be able to tell you how to get it back. For example, if you start another job and hand in that P45, it should all sort itself out quite fast.

Jlbjones

Dear Savvy Sue

Glad you're happy to help!

I am still unemployed (a mere fortnight so far), though applying for work. My kind of work does not crop up that frequently, though, so it may turn out to be for a few months.

I am on contribution based JSA, as of 1 August.

I thought it looked like 40% tax when I did the calculations.

Anyway - I'll most certainly not be earning, typically each month, the amount I earned in July. More likely to be slightly less than my original gross income of £27696 - I may have to settle for part-time employment (lots of posts being cut and offered part time now), which means I'll probably have around £13500 gross salary (pro-rata!) by the end of the financial year.

Is this enough info? Many thanks for your assistance.

andyuk01

Dont go onto JSA (either kind) for 4 weeks

After 4 weeks fill in a P50 and send in copies of your P45 and HMRC will refund, via cheque, any overpaid tax

Then start claiming JSA

If you claim JSA first you'll either get the overpaid tax back at the end of the year or through your PAYE spread across the rest of the year if you find employment

Same end result but the first way gives you lump sum

chrisbur

Jlbjones wrote: »

Hi

Apologies for extending a long thread - I don't know how to begin a fresh one!

I have a query concerning the amount of tax I've just paid, as revealed on my last payslip for end of July (when I left my job owing to redundancy).

I was entitled to take PILON, through my own choice, for 5 months, having worked only 1 month of notice out of 6.

I am on tax code 944L. Salary 27,696. I was therefore given £11691.76 as PILON on top of my basic pay 2308.00 and some back pay £68.49, totalling 14068.25.

Now, I'm not sure if I am confusing things, but I would expect my PILON to be taxed at the usual 20% rate (after the £9440 non-taxable allowance).

Therefore, I cannot understand why I have been taxed £3940.40 for these earnings of £14068.25. For 2013-14 the total tax paid is £4758.40, according to my wage slip. Yet, according to my calculations on the HMRC checker, I ought to be granted £2,461.40 back.

Does this sound right? I'm not on anything more than a 20% tax rate, but wondered if I have somehow slipped into emergency tax, bearing in mind the code 944L.

Unfortunately, I've no human to ask. I've tried calling HMRC on their ridiculously overpriced phoneline, which kept telling me (during 'contact hours') I should put the phone down because the line was too busy, incurring a great cost of repeatedly calling (and never getting through!). And there's no email address to contact them that way. A letter will take time to be processed, and I expect it will not be read until at least a fortnight. I thought I might get more sense out of a moonlighting HMRC advisor on this site!

Many thanks

Yes you have paid some tax at 40% to understand why you need to understand how PAYE works. You get a tax free allowance and an allowance at 20% and then pay tax at 40%. These figures are usually given as yearly figures but you do not get the full yearly amount until you reach month 12 of the tax year. Month 1 you get 1/12 of these figures, month 2 you get 2/12 month 3 you get 3/12 etc.
I have rounded all the figures that follow to save typing.
So in month 1 you are allowed to earn £787 (1/13 of £9440) on which no tax is paid, and then £2667 (1/12 of £32010)on which 20% tax is paid, 40% tax would then be due on earnings above that if you had earned enough. You then have that tax figure deducted from month 1's salary.
In month 2 you get £1574 on which no tax is paid and £5334 on which 20% tax is due and 40% would be due on earnings above that. These figures are set against your earnings to date that is total earnings for month 1 and 2 and a tax due figure is worked out. Tax already paid in month 1 is deducted from that and what is left is the tax due for month 2.
In month 3 you get £2361 with no tax £8001 with 20% tax and 40% would be due on earnings above that. Tax is calculated on total earnings to month 3 and tax paid in months 1 and 2 is deducted, what is left is tax due for month 3.
Month 4 is where I believe your last wage fell so you got £3148 on which no tax due, £10668 on which 20% tax is due and now as your total gross is now £20940 (three months estimated normal earnings plus the large payment in month 4) you have £20940 less £3148 less £10668 which is £7124 to be paid at 40% from this is deducted payments in months 1 to 3 to give tax due for month 4.

To summarise you have paid some tax at 40% as your total earnings to date are greater than the total tax free allowance to date and the total 20% tax band to date.
Your calculation on the tax calculator makes the assumptions that you are getting the full yearly allowances, and that you will have no more taxable income this tax year, neither of which are correct so best to forget about that.
The tax you pay will eventually be decided by your total taxable earnings for the tax year, you may be able to get some back earlier rather than later but the total you pay will not change. Delaying signing on will probably reduce the benefit you get and could miss a job as a result, who knows?

Jlbjones

andyuk01 - thanks for the advice. Unfortunately, if I had realised about this overpayment a fortnight ago (with so many things to organise right now, I didn't get round to double checking until yesterday), I'd have taken your advice about contribution based JSA. But sadly I signed on the day after being made redundant!

On the other hand, Chrisbur - your mention of losing out on possible benefits, and possibly a job, is very sensible. On balance, I think I am better off long term, having signed on. I will, afterall, see that income again, at least by the beginning of April - so not all is lost.

Thanks both for your very helpful information.