Calculating income tax when you haven't had income for some months

taxq

I thought I knew how income tax is calculated but I'm confused how income tax is calculated when you are a higher rate tax payer and haven't worked the first few months of the tax year. I think it just shows that the way I'm calculating it is really sloppy...

Normally I'd take 1/12th of the basic rate treshold (£31,865) and take 20%. I'd then take the monthly pay, subtract 1/12th of the personal allowance (or whatever your tax code is) and the 1/12th of the basic rate threshold and take 40%.

But how do you calculate income tax when you haven't worked at all in April and May? It seems the previous tax paid and/or the total income for the tax year is taken into account.

Any explanation or link for the process to calculate income tax on a monthly basis properly in this case?

purdyoaten

Not sure of the difficulty given that you have grasped the principle.

This is August, month 5. Establish the earnings for the tax year to date including for August.

You would first subtract 5/12 of the personal allowance.
On the remainder £13277 (5/12 of 31865) will be at 20%.
The remainder will be at 40%. If the remainder is Nil - you are not HR.
This is the tax payable TO DATE.

Subtract from this the tax PAID TO DATE at month 4 (or month 3 if no payment in month 4 etc)- this will be the tax payable at month 5.

sheramber

if you haven't used the months allowances they carry forward to be used the next month.

If there is no income April and May then in June you will have 3/12 of all allowncs available. two months unused and the allowncws due for June.

In July you will have 4/12 but will have used 3/12 up to Jume so are back to 1/12 available.