What happens when you earn £1 or more over your tax code?

King_Mustard

I only have a basic knowledge of how personal tax works, so I'm just trying to understand something (and some of my assumptions may be incorrect):

Let's assume my tax code for 12-13 was 6300.

If I earn £6299 in 12-13, I can claim my tax back when May 2013 arrives, yes? (which could be hundreds of pounds)

However, what happens if I earn £6301? Do I miss out on all those potential hundreds?

Cheers, guys!

King_Mustard

blondebubbles wrote: »

Why would you have paid tax if your earnings were below your personal allowance?

I've always paid tax, even if I don't earn my allowance per year. No idea why, confuses me. I just claim it back in May each year if I didn't earn my allowance.

jacques_chirac

King_Mustard wrote: »

I've always paid tax, even if I don't earn my allowance per year. No idea why, confuses me. I just claim it back in May each year if I didn't earn my allowance.

That would imply that either your tax code is wrong, or you work in such a sporadic pattern that the tax office can't keep up with you! (More likely to be the former, changes in income should be reflected during the year.)

King_Mustard

jacques_chirac wrote: »

That would imply that either your tax code is wrong, or you work in such a sporadic pattern that the tax office can't keep up with you! (More likely to be the former, changes in income should be reflected during the year.)

Yeh, my work is all over the place. Usually contracts between 1 and 6 months each time.

Caz3121

King_Mustard wrote: »

However, what happens if I earn £6301? Do I miss out on all those potential hundreds?

In your scenario, you would then be due tax on the £1 and would reclaim anything over and above that

Cycrow

if you earn 1 pound over your tax allowance, then your taxable pay would be £1. So you would pay 20p in tax.

if you have paid more, you will get the difference back.

tax is worked out each month (assuming monthly pay) so you get 1/12th your tax allowance each month if you earn over that allowance in the month, then you get taxed on that amount.

if you worked the same each month and get roughly the same amount, then the amount you pay in tax would end up correct.

at the end of the year they take your yearly earnings then work out how much tax you should have paid, if it doesn't match what you paid then you either have to make up the difference, or get the difference back

Naf

Forgive me if I start too basic for you;
Your tax code indicates the amount you can earn each year without paying any tax. Generally employers should break this down into a weekly/monthly etc. figure (depending how often they pay you) so it gets spread evenly across the year. As long as you hand P45s to new employers, you really should find that things turn out OK.
At £6300 you can earn £121 a week without paying tax. If your pay packet comes to more than this some weeks, you might find tax gets taken off, even though by the end of the year you end up being under the £6300.
Sounds like cumulative codes aren't being carried across your jobs?

seven-day-weekend

If you earn £1 over your tax-free allowance,then you would pay tax on £1 (20p).

King_Mustard

I understand now.

Cheers guys

Naf

I'm glad the old system was changed, though; when I first turned 16 there was some nonsense where for every £1 over your tax code you earned, you were taxed on £2 or something ridiculous.

soolin

Naf wrote: »

I'm glad the old system was changed, though; when I first turned 16 there was some nonsense where for every £1 over your tax code you earned, you were taxed on £2 or something ridiculous.

Never heard of that one. Tax allowances have always been tax free with clearly defined tax bands above the tax free allowances. Perhaps you saw the NI going out as well which is based on a different set of bands?