Is tax payable?

zaksmum

Friend aged 55 and single earns £8486 a year. She also has two pensions of £746 and £546 a year. She has no other income and no savings.

HMRC says she is liable for tax, even though they say she has a tax free personal allowance of £10,060. They say her personal allowance has been split and allocated to each pension giving tax codes of 74T and 54T. Her tax code is given as 876L for her employment. She pays around £30 a month tax which HMRC insist is correct.

She can't understand why she should pay any tax at all.

Is she missing something?:(

Your_Hero

How often is her earnings paid to her? e.g. monthly or weekly? And does her earnings fluctuate from each pay period?

http://www.hmrc.gov.uk/students/first_job_whatabouttax_13_1.htm
Normally under the PAYE system the Personal Allowance is divided by the total number of pay days you will have in the tax year:

• if you are paid monthly, the allowance is divided by 12 (£10,000 divided by 12 months = £833 a month)
• if you are paid weekly, the allowance is divided by 52 (£10,000 divided by 52 weeks = £192 a week)

If you are paid monthly your employer will not deduct tax from the first £833 you earn each month.

So if her income fluctuates above the tax-free band, then they will deduct tax automatically. She can reclaim it back though.

agrinnall

If she's paying tax at all it has to be for the reason Your Hero says based on what you've told us about the split of the tax code. Assuming she earns the expected annual amount there should be no need to reclaim it as by the end of the year it will have been repaid in the pay periods where pay is below the taxable limit.

zygurat789

Assuming that she is paying tax on the salary then £30 pm is £150 of taxable income.
I would ask the question how much has been earned to date, the annual salary is an estimate and is irrelevant until the end of the year when it becomes fact.

zaksmum

Thanks. Her pay doesn't fluctuate at all. She works a 30 hour week and is paid monthly.

Her annual salary is slightly down on last year as she had to agree to take a pay cut to save her job. Only by about 50p an hour though.

chrisbur

zaksmum wrote: »

Thanks. Her pay doesn't fluctuate at all. She works a 30 hour week and is paid monthly.

Her annual salary is slightly down on last year as she had to agree to take a pay cut to save her job. Only by about 50p an hour though.

In which case the only way to see what is happening is to give full details. For each source of income give the following details from the last payslip..
Taxable gross, tax paid, tax code, tax basis, month or week number (or date paid if not shown) taxable gross to date and tax paid to date.

zygurat789

We are hearing this second hand, somewhere along the line something doesn't quite add up. It maybe that the friend isn't prepared to divulge all the details or doesn't understand that certain details may be relevant.
It may not make any diference but any characters after the L and T in the code numbers should be mentioned too.

Caz3121

zaksmum wrote: »

Friend aged 55 and single earns £8486 a year.

zaksmum wrote: »

Thanks. Her pay doesn't fluctuate at all. She works a 30 hour week and is paid monthly.

From those figures she is earning less than minimum wage at £5.44 per hour....is that correct?

zaksmum

She earns exactly the minimum wage but she's on a zero hours contract and has not been guaranteed the 30 hours every week.

Her last P60 showed the figure of £8486 gross for the tax year 2013-2014.

It doesn't add up to me either and she has asked me to try to find out what is going on as she doesn't have a computer. She did query it with HMRC and their response was that it is correct that she pays tax, quoting the tax codes and figures as detailed above.

zaksmum

It was the standard personal allowance that everyone gets...the one that's just gone up to £10,000 for this tax year, plus she has the extra £60 a year allowance as she washes her work uniform at home.

agrinnall

I'm afraid that what you're telling us doesn't add up, probably because you're not getting the full story. Does she work in a school on a term-time only contract?

If your friend is earning NMW then her gross pay for 2013/4 suggests she worked around 1344 hours. At 30 hours per week that means she only worked 44 weeks and didn't get paid holidays (I'm not entirely certain but I think this may currently be allowed for zero hours contracts). In which case for the first part of the year she may well be earning at a rate higher than her personal allowance, so would be taxed, but once the unpaid periods get taken into account the tax would be repaid and by the end of the year she should have paid none at all.

The other thing to consider is whether she and you are confusing tax and National Insurance, anyone working 30 hours a week at NMW will pay around £4.30 in employee's NI (although now I've done the calculation it doesn't seem very likely to be the issue).

PS If you have seen her P60 then you should be able to tell us how much tax she paid - if it's greater than zero then something odd has happened.