Extra tax on back pay

Estie

Hi
Since September of last year I should have been receiving an extra payment for additional responsibility at work. It's taken 11 months for the payment to be signed off, so this month I got paid 11 months worth all in one go. However almost half of the payment has been taken off as tax. Why would this be? I only normally pay basic rate tax.
I know I could ring the payroll office and ask, but as they're now closed for the weekend I thought I'd ask if anyone on here had any ideas.
Thanks.

getmore4less

Some numbers would help.


Simplistic view, PAYE works on averages/total for the years so far and assumes that this will continue to the end of year.


Eg. you get 1/3 of your allowances for April-July to set against the total so far


Lump sums raise the average more the earlier they are paid in the year.


This can cause some of the money to go into the higher rate for that payment, you get it back over the next few months depending on how big the payment was, by the end of the year it will sort out.


Your payslip should show deductions(TAX and NI) on a small amounts it would be 32% then some at 42%.


Are there other deductions like pension or student loans?

chrisbur

Estie wrote: »

Hi
Since September of last year I should have been receiving an extra payment for additional responsibility at work. It's taken 11 months for the payment to be signed off, so this month I got paid 11 months worth all in one go. However almost half of the payment has been taken off as tax. Why would this be? I only normally pay basic rate tax.
I know I could ring the payroll office and ask, but as they're now closed for the weekend I thought I'd ask if anyone on here had any ideas.
Thanks.

If you want an explanation you have to give figures. Taxable gross, tax paid, tax code and basis, national insurance for the month and then the taxable gross to date and tax paid to date. Then an estimate of future earnings for this tax year.

mountainofdebt

whilst numbers would be helpful to show you exactly why the amount of deductions have happened, its as getmore4less has stated, it may have pushed you into a higher tax bracket or affected the amount you pay back in student loans.

Don't forget as well you would have also increased NI contributions.

One tiny crumb of comfort is that you would have a higher personal allowance this tax year

chrisbur

mountainofdebt wrote: »

whilst numbers would be helpful to show you exactly why the amount of deductions have happened, its as getmore4less has stated, it may have pushed you into a higher tax bracket or affected the amount you pay back in student loans.

Don't forget as well you would have also increased NI contributions.

Without actual figures any answer given here is no more than a guess.
It could be that the OP has gone into a higher tax bracket cannot tell without figures; that tax may come back to the OP in full or partly, cannot tell without the figures.
Higher NI possibly also possibly lower NI than would have been paid if payments had been made over past 11 months, cannot tell without figures.

agrinnall

While everyone has rightly concentrated on the lack of detail, one thing that hasn't been commented on is that half of the payment should have been made in the last tax year and half in this one, had it been paid at the correct time. If the lump sum has pushed you into higher rate tax this year then it's possible that had it been paid as intended you might have stayed at standard rate both last year and this year. It may be possible for the payment to be reallocated across the two years, but it's not something I've ever had done so hopefully others will be able to say if it can be done.

LittleVoice

agrinnall wrote: »

While everyone has rightly concentrated on the lack of detail, one thing that hasn't been commented on is that half of the payment should have been made in the last tax year and half in this one, had it been paid at the correct time. If the lump sum has pushed you into higher rate tax this year then it's possible that had it been paid as intended you might have stayed at standard rate both last year and this year. It may be possible for the payment to be reallocated across the two years, but it's not something I've ever had done so hopefully others will be able to say if it can be done.

Tax has to be calculated for the year in which it is paid, not when due. (Just as a salary payment on 6 April is taxed for the new year even though most of the amount may have been earned in the old year.)

Though receiving the amount related to the previous year in that year may have kept both years' income within the basic rate bands, eventually this year 40% will be paid only on the amount, if any, in that band, not the whole lot.

chrisbur

agrinnall wrote: »

While everyone has rightly concentrated on the lack of detail, one thing that hasn't been commented on is that half of the payment should have been made in the last tax year and half in this one, had it been paid at the correct time. If the lump sum has pushed you into higher rate tax this year then it's possible that had it been paid as intended you might have stayed at standard rate both last year and this year. It may be possible for the payment to be reallocated across the two years, but it's not something I've ever had done so hopefully others will be able to say if it can be done.

There are circumstances where this can be done and in the first instance the OP would need to contact HMRC who would flag their record to be checked at tax year end; but until we see some figures cannot say if it would be something they should consider.
Towards the bottom of
http://www.hmrc.gov.uk/manuals/pommanual/paye70023.htm

agrinnall

LittleVoice wrote: »

Tax has to be calculated for the year in which it is paid, not when due. (Just as a salary payment on 6 April is taxed for the new year even though most of the amount may have been earned in the old year.)

Though receiving the amount related to the previous year in that year may have kept both years' income within the basic rate bands, eventually this year 40% will be paid only on the amount, if any, in that band, not the whole lot.

So you're wrong. Feel free to post an apology .

chrisbur wrote: »

There are circumstances where this can be done and in the first instance the OP would need to contact HMRC who would flag their record to be checked at tax year end; but until we see some figures cannot say if it would be something they should consider.
Towards the bottom of
http://www.hmrc.gov.uk/manuals/pommanual/paye70023.htm

keyser666

If the company is using PAYE live you will prbably get it back in your next payment

Dr_Teeth

Whether or not it can be split over two tax years will depend on when you actually became entitled to the money. Can you give us more detail on what the nature of the payment was? Was it contractual? You mention it having to be signed off, that suggests you may not have been entitled to it until it was approved.

We need more detail to be certain.