Tax and overtime... Where do I get taxed the 40%

LukeHogarth

Hello everyone,

First time posting here. Have lurked for years, and the community here has been so helpful for me!

Here's my query:
My income right now is £39,000.
So £29,000 is taxed at 20%

It's my understanding that when I hit £31,866, the income past this is taxed at 40%.

I work shifts, and often get overtime, making my annual income higher... But this will be the first year that it will hit the 40% mark...

To date, for argument's sake, I have earned £5,000 in overtime... I still have 6 months of the tax year left, so haven't earned my basic salary yet.

When it get's to the end of the tax year, will this mean that my final 2 months (I'm guessing here) will be taxed at 40%?




I guess what I'm asking, is does the 40% tax come in as soon as you hit £31,866? I'm just thinking about budgeting for my mortgage, etc... My 20% tax is around £450, so I'm worried about being slammed with £900 tax on the last months of the tax year!!

I hope this makes sense...

Thanks,
Luke

somethingcorporate

Try google, the HMRC website or the search function on this website - this question is asked very frequently.

LukeHogarth

I've poured over HMRC, and have searched here.
Am still searching this website but still haven't found anything about this yet...

LukeHogarth

I'm getting mixed answers from some forum posts.. Some are up to 5 years old, so don't know how credible they are today.

It seems that when I am paid more than normal in a month, HMRC then calculate my overall annual basic salary + this bonus/overtime... But then my tax should vary slightly every month...

On months where I earned no overtime time year, my tax has been the correct 20% each payslip.


I think the more I read, the further away I'm getting from an answer, lol

chrisbur

How tax is worked out slightly over-simplified as assumes on a cumulative tax code (as most are ), pay is monthly and that tax is not due at a rate higher than 40%; should cover your situation.

Month 1 You get 1/12 of your tax free allowance 1/12 of your 20% allowance. Your 20% tax due is worked out and if you go over that allowance your 40% tax due on earnings for month 1 is worked out. This is the tax you pay for month 1.

Month 2 You get 2/12 of your tax free allowance 2/12 of your 20% allowance. Your 20% tax due is worked out and if you go over that allowance your 40% tax due is worked out on your total earnings for months 1 and 2. From this total tax due figure the tax you paid in month 1 is deducted. This is the tax you pay for month 2.

Month 3 You get 3/12 of your tax free allowance 3/12 of your 20% allowance. Your 20% tax due is worked out and if you go over that allowance your 40% tax due is worked out on your total earnings for months 1 2 and 3. From this total tax due figure the tax you paid in months 1 and 2 is deducted. This is the tax you pay for month 3.

Month 4 You get 4/12 of your tax free allowance 4/12 of your 20% allowance. Your 20% tax due is worked out and if you go over that allowance your 40% tax due is worked out on your total earnings for months 1 2 3 and 4. From this total tax due figure the tax you paid in months 1 2 and 3 is deducted. This is the tax you pay for month 4.

And so on....

LukeHogarth

Thanks for the reply Chrisbur.. I think I understand.
I need to take a look at my payslips where I worked overtime and see if there is anything on there taxed at 40%.

Thanks for your help

weatherlobe

Better still why not down load a free PAYE Tax Calculator app to your smartphone. On some you can key in different gross pay figures, part year calculations, and even factor in specific deductions such as Pension Contributions as well as the statutory Tax and NI. Works even better if you know your Tax Code.

LukeHogarth

I use SalaryCalc on my phone.. But that just gives me a monthly breakdown when I put my annual salary in.

I haven't found one that I can input individual months in as of yet.

I just want to find out if I'm going to be taxed on the extra gradually via HMRC's predictions, or if I'm going to get smacked with 2 months of 40% tax

I'll give them a call tomorrow and see what I can find out.


Thank you all for your input.

Caz3121

Tax works in years not in months although for PAYE they will use a % of your allowance each month
If your income for the year is £44k (£39k + £5k overtime) you would pay
£10k = 0% (personal allowance)
£31,865 @ 20% = £6,375
£2,135 @ 40% = £854

depending on when in the year you did the overtime you may see some of the payment being at 40% but on PAYE it evens itself out so at the end of the tax year you would have paid the correct amount

If you want to work out how much of the overtime would be at 40% then you should look at your allowance + 20% rate and divide that by the number of months and compare that to the income and tax paid to date

eg in month 9
personal allowance = £7,500
20% rate = £23,900
total at month 9 before 40% kicks in = £31,400
if you have not done overtime etc before this date, you would have earnt £29,250
so if you have a £5k additional payment in this month you would be paying 20% on £2,150 and 40% on £2,850
however if you do not have any other additional payments above your basic in the further months you should get a little of the 40% tax refunded each month so the annual totals will reflect those above

PHYTHIAN

LukeHogarth wrote: »

Thanks for the reply Chrisbur.. I think I understand.
I need to take a look at my payslips where I worked overtime and see if there is anything on there taxed at 40%.

Thanks for your help

Luke

You won't see anything that says ' you have been taxed at 40%'.

As caz's excellent explanation shows, at the moment a proportion of your pay will already be getting taxed at 40% based on the figures you have given. This is mapped out over the year and is designed to avoid the exact concern you have ie having to pay out a straight 40% of your last two months wages.

I pay 40% tax on about 20k. If that was all taken in the last two months, my net pay for those months be a minus!!

chrisbur

weatherlobe wrote: »

Better still why not down load a free PAYE Tax Calculator app to your smartphone. On some you can key in different gross pay figures, part year calculations, and even factor in specific deductions such as Pension Contributions as well as the statutory Tax and NI. Works even better if you know your Tax Code.

These tax calculators assume that any monthly figure you put in is your normal earnings. This makes no difference if you earn the same every month or your earnings change but do not change enough to move across the 20%/40% tax band changeover point, which is probably going to happen with the OP.

They really should all have a warning that sometimes they will give the wrong answer for monthly/weekly calculations.