Can someone help me understand this

getmore4less

Remember the 20% tax band has also moved

FireWyrm

getmore4less wrote: »

Do the tax again calcs with a 1000 code that will show you how much extra you are paying.


April £834 £985 -£50
May £736 £685 -£50

So I did that and the calculator believes that I would have paid £585.32 in PAYE. Adding that to the £344.34 in NatIns, gives you £929. I paid £1029, so, the difference is almost exactly £100.

My question therefore still stands, if I wasnt paying back HMRC the £343 I owe them, then I would have taken home £2820 this month, but the payslip shows £2720.74. This means that I am paying £100 a month and over the course of the year to April 2015, that means over £1000. Surely this isnt right?

FireWyrm

getmore4less wrote: »

Do the tax again calcs with a 1000 code that will show you how much extra you are paying.


April £834 £985 -£50
May £736 £685 -£50

I also dont understand why you quote the loss of £50? £343 divided by 12 would be : £28.58.

chrisbur

FireWyrm wrote: »

Thanks very much for the information. Here are the calculations you asked for.

March 2014 :

Gross : £3750
PAYE : 592.40
Nat Ins : 342.88
Total : 935.28

March was the end of year, so here are the TO DATE values
Taxable : 40525 (I had a baby last year)
Tax : 6215.20
Nat Ins : 3695.29
Tax code : 944L
Net Pay : 2814.72

Payslip April 2014 :
Salary : 3750
Bonus : 750
PAYE : 984.91
Nat Ins : 359.34
Total : 1344
Tax Code : 851L
Net Pay : 3155.75

Payslip May 2014
Salary : 3750
PAYE : 684.92
Nat Ins : 344.34
Total : 1029.26
Tax Code : 851L
Net Pay : 2720.74


Now, I acknowledge the £343 payment (not happy, but understand it needs to be paid) but it seems harsh to me that I will have to endure a pay cut of over £1000 a year for the next year to pay back £343 that I actually owe.

Do the figures above help?

First point you are comparing the net pay you received last year on £3750 with the net pay you received this year on £3750 but there is a difference. Last year you were earning less over the whole year than your current average earning suggest you will earn this year. The result of this is that last year on the £3750 wage you did not pay any 40% tax while this year you have. If your earnings last year had been as high as your earnings this year when you received your March payment of £3750 gross you would have paid about £651 in tax not £592 as you did. This also probably is the reason the tax office assumed you would pay tax at only 20% this year as that is the rate you paid at last year. Does not explain the error in calculating the 20% though.

You are paying more than is required to clear your debt but not by the margin that you are working out. I would contact HMRC to advise you are now paying tax at 40% so paying extra, and if you and they are happy for you to pay off the amount owing this would be the easiest solution and you would then get your 1000L code back. This would then increase your net pay on £3750 by about £50. If they still want to adjust they do need a new figure and would suggest putting it on here to be checked.

Second point the tax and NI on the £750 seems to be correct at 40% tax and 2% NI so cannot see where your 58% tax comes from, how are you arriving at this figure?

chrisbur

FireWyrm wrote: »

I also dont understand why you quote the loss of £50? £343 divided by 12 would be : £28.58.

The £50 is the result of the adjustment being made at 40% not the 20% it was calculated on; and the error in the maths...
"this should collect the amount due (£1482 at 20% is £343.87)"
20% of £1482 is £296.40 so £296.40 divided by 12 is £24.70 but being collected at 40% not 20% collects £49.40 (nearly £50)

getmore4less

chrisbur wrote: »

The £50 is the result of the adjustment being made at 40% not the 20% it was calculated on; and the error in the maths...
"this should collect the amount due (£1482 at 20% is £343.87)"
20% of £1482 is £296.40 so £296.40 divided by 12 is £24.70 but being collected at 40% not 20% collects £49.40 (nearly £50)

Thanks that explains, it will need the tax code adjusting again.

FireWyrm

To be clear, the £343 is the remainder of the money that should have been taxed at 40% to start with. The whole amount from the Insolvancy Agency was taxed at only 20%, not 40% that should have happened.

At the end of the day, I still only owe HMRC £343 in total, however it is calculated.

So, they are actually taking 40% of the money not 20% on the first 10,000 as it should be, plus, whoever wrote that initial tax code letter couldnt work out a simple percentage which complicates matters.

What hope for the rest of us eh?

I'm still confused as to what I would really be getting if I wasnt adjusted?

Question : What will happen if I just work around it and take the pain for the rest of the year? Will my interference by paying £343 in cash only confuse them more, or will it work out in April 2015?

chrisbur

FireWyrm wrote: »

To be clear, the £343 is the remainder of the money that should have been taxed at 40% to start with. The whole amount from the Insolvancy Agency was taxed at only 20%, not 40% that should have happened.

At the end of the day, I still only owe HMRC £343 in total, however it is calculated.

So, they are actually taking 40% of the money not 20% on the first 10,000 as it should be, plus, whoever wrote that initial tax code letter couldnt work out a simple percentage which complicates matters.

What hope for the rest of us eh?

I'm still confused as to what I would really be getting if I wasnt adjusted?

Question : What will happen if I just work around it and take the pain for the rest of the year? Will my interference by paying £343 in cash only confuse them more, or will it work out in April 2015?

The amount that you owe is £343 if they take more you will be able to claim a rebate of the excess after the tax year end. As it stands at the moment you are paying around £21 to £22 a month extra but this will only be the case if your current earnings continue. If your earnings were to go down as the year progressed and you stopped being a 40% tax payer then tax you had paid at 40% would be converted to tax at 20%, the difference would come back to you in your salary and at the year end you would not have paid back the full £343 due to the mis-calculation of the 20%.

If it had not been adjusted you would be receiving a net pay of about £49.50 more each month. £1490 reduction at 40% = £596 which is £49.66.

Will paying back the £343 confuse things? In truth I have no idea but it should not. You give them £343 and they change your tax code to 1000L, your tax will be re-calculated from the start of the year and any tax paid so far due to tax code change will come back to you. It should be simple but then so is working out 20%.

FireWyrm

!!!!!!. So, basically, this year, earning £45K (plus bonus if I get it), I will effectively be £50 a month WORSE off than last year only earning £40K and no bonus. What a flipping stupid system. It's a good job the Chancellor put the tax free allowance up or I would really be in a mess!

OK. I think I am going to pay them off entirely out of next month's pay and be done with it. I can then argue the toss over the 'overpaid' amount out of this month and last months' salary. I'm still concerned that they will mess that up too since they cant seem to work out £343 x 5 to give an overall amount to deduct from £10K but hubby says it isnt the same service he worked for all those years ago.

I'm still annoyed about losing the extra £50 a month though overall. I might as well not have bothered accepting a payrise at all.

chrisbur

FireWyrm wrote: »

!!!!!!. So, basically, this year, earning £45K (plus bonus if I get it), I will effectively be £50 a month WORSE off than last year only earning £40K and no bonus. What a flipping stupid system. It's a good job the Chancellor put the tax free allowance up or I would really be in a mess!

No I am afraid you are not understanding the way PAYE works. You are not worse off by £50, in fact you are not worse off at all, you are better off. As a simple rule of thumb as far as tax alone is concerned (may not be true if receiving benefits) the more tax you pay the more money you get.
Forgetting the tax you owe for the moment.
Last year you grossed 40,000 and paid £6215 in tax and £3695 in NI so you got £30,090
This year assuming £45,000 you will pay tax of £7627 and NI of £4131 so you will get £33,242 which is £3152 more than last year or an extra £262 a month. Nearly all of this increase is due to your increase in pay.
While you are in the 40% tax every pound extra you get has 40 pence tax and 2 pence NI deducted from it and you get 58 pence.
So to work it backwards every pound of payrise you decline would make you 58 pence worse off; so refuse a £100 payrise you throw away £58 refuse £1000 and throw away £580 etc.

If you pay the £343 to tax office just check that you go to 1000L cumulative for your tax code that will correct all.