Tax Free allowance, how do the IR use it?

Zammo76

I have a tax free allowance of £10,600 a year but i'm not really sure how the Inland Revenue (or whoever) uses this.


IMO the best way to use this would be to not charge you any tax until you have earned over this amount. However to me it looks like the Inland Revenue doesn't do this and instead apply a percentage tax free amount on your pay each month.

However I want to know what this percentage is and also when it expires. For instance some months I should be charged £730 tax and instead this amount is lower around £600 so I'm guessing some of my tax free allowance is being used. Then sometimes I'll be taxed the entire 20% rate and I'm guessing these are the months where my tax free allowance has run out.

It would seem to me a little shady how this tax free allowance is used as there's no real way of keeping track of it and you've just got to hope you're not being ripped off by some accountant somewhere.

p00hsticks

If you're on PAYE, then your allowance will be divided up according to how frequently you get paid - so if you are paid monthly you'll get 1/12th of the allowance applied each month (so the first £833 of your earnings will be tax free), if you get paid weekly it will be 1/52nd each week (or around £204)

Assuming your tax code is not changing, you should be getting the same amount tax free each month - the only reason you should be paying more tax is if you are earning more that pay period.

Spidernick

I don't even know where to start with this!

Zammo76 wrote: »

I have a tax free allowance of £10,600 a year but i'm not really sure how the Inland Revenue (or whoever) uses this.


IMO the best way to use this would be to not charge you any tax until you have earned over this amount. However to me it looks like the Inland Revenue doesn't do this and instead apply a percentage tax free amount on your pay each month.

As advised above, you get a twelfth of your allowance each month. Let me give you an example of how it would work in your world.

To make things easy, let's ignore NI, pension, etc. and just focus on tax. Let's say you earn £24K and the personal allowance is £12K (to keep it easy). If things worked the way you want you would pay no tax for the first six months of the year and would take home the full £2K each month. You would then have earned your £12K allowance and so would then pay 20% on everything for the rest of the year, so £400 a month, leaving you only £1,600 a month.

Under PAYE you would pay £200 a month for the whole year - much better, surely?!!!

Zammo76 wrote: »

It would seem to me a little shady how this tax free allowance is used as there's no real way of keeping track of it and you've just got to hope you're not being ripped off by some accountant somewhere.

Seriously? I mean, seriously?!!! It takes all sorts, I suppose.

Zammo76

Thanks for clearing this up.

I am a bit confused still though as some months I have been charged the full 20% tax rate and others less. It seems quite random to me.

Also my company have managed to mess up my OT this month and I have been charged this separately from my normal wage. Yet the tax deduction i have been charged on this is well over 20%, I'm not in the higher tax bracket so Ive no clue why this has happened. In fact for this OT payment my deductions (tax, NI, student loan) are over 50% of the pay!

IMO it is shady behaviour as it isnt transparent what is going on and to average layman it can be quite confusing, not to mention charging 20% tax is just disgusting and is crippling me financially. So there's no need to be so condescending!

CLAPTON

Zammo76 wrote: »

Thanks for clearing this up.

I am a bit confused still though as some months I have been charged the full 20% tax rate and others less. It seems quite random to me.

Also my company have managed to mess up my OT this month and I have been charged this separately from my normal wage. Yet the tax deduction i have been charged on this is well over 20%, I'm not in the higher tax bracket so Ive no clue why this has happened. In fact for this OT payment my deductions (tax, NI, student loan) are over 50% of the pay!

IMO it is shady behaviour as it isnt transparent what is going on and to average layman it can be quite confusing, not to mention charging 20% tax is just disgusting and is crippling me financially. So there's no need to be so condescending!

only the actual facts and details can explain the situation

p00hsticks

Zammo76 wrote: »

Thanks for clearing this up.

I am a bit confused still though as some months I have been charged the full 20% tax rate and others less. It seems quite random to me.

This seems surprising and shouldn't be happening - can you supply examples ? Give your gross pay, tax paid and tax code from your payslips...

chrisbur

From the very limited details you have given it suggests to me that you may well have fluctuating earnings which are going into the 40% band sometimes. As CLAPTON says details are required if you want to understand what is going on to start with I would suggest that you list your monthly taxable gross and the tax paid starting with month 1 (paid sometime between 6 April and 5 May) and continuing to date.
Then from the last payslip give your taxable gross to date and tax paid to date.
This will enable someone to show you exactly what is happening.

Zammo76

OK so my pay has been as follows for this tax year:

April
Gross = £3023.68
Tax = £427.80
NI = £282.20
Student Loan (SL) = £142

May
Gross = £3224.57
Tax = £468.20
NI = £306.31
SL = £160

OT Late Pay
Gross = £821.05
Tax = £164.90
NI = £47.16
SL = £74

June
Gross = £3818.56
Tax = £643.85
NI = £348.93
SL = £213

July
Gross = £3818.56
Tax = £644.25
NI = £348.93
SL = £213

August
Gross = £3770.97
Tax = £624.65
NI = £347.98
SL = £209

September
Gross = £2438.25
Tax = £148.55
NI = £211.95
SL = £89

OT Late Pay
Gross = £547.37
Tax = £162.50
NI = £65.68
SL = £49

Gross pay to date: £21,463.01
Taxable Pay to date: £21,463.01
Tax to date: £3,284.70
Tax code: 1060L


Please note on two occasions (May and Sept) my payroll dept. have messed up and I've had to get them to do a late payment for my OT.

Zammo76

booksurr wrote: »

it might help if you lost the attitude then. There are plenty of places on line which explain the basic facts of how the UK tax system works, all you have to do is google it.

Citizens Advice Guide to PAYE: https://www.citizensadvice.org.uk/tax/how-to-pay-income-tax/the-pay-as-you-earn-paye-system/

If you do not wish to pay tax then move to a tax haven.
If you are being "financially crippled" you might do well to start on the Debt free wannabe board where there are experts on how to set and manage a budget as being crippled simply means you are spending too much or you want too much. Alternatively simply stop using any of the services paid for by taxation then there won't need to be any, but doubtless you rather need roads, hospitals and doctors

What attitude?

Someone was being condescending to me and I simply asked them to back off as the whole process is confusing and as said previously not very transparent.

BTW I did try to google how tax free allowance works but it wasn't coming up with any descriptions saying how it did. I've read the information at the link you supplied and there is no explanation as to how they deduct your tax free allowance from your wage. However someone on here was kind enough to point that information out.

Tax to me is a necessary evil, unfortunately its been set at such a high rate by the current government that it is now effecting mine and a lot of other peoples ability to be able to pay the mortgage, bills, childcare, food and actually be able to have some sort of quality of life. As for me spending to much that simply is not true after I have paid out on all of the above I have a little over £100 pounds a week for myself, which I then have to use for money to eat at work and also to commute in.

CLAPTON

Zammo76 wrote: »

OK so my pay has been as follows for this tax year:

April
Gross = £3023.68
Tax = £427.80
NI = £282.20
Student Loan (SL) = £142

May
Gross = £3224.57
Tax = £468.20
NI = £306.31
SL = £160

OT Late Pay
Gross = £821.05
Tax = £164.90
NI = £47.16
SL = £74

June
Gross = £3818.56
Tax = £643.85
NI = £348.93
SL = £213

July
Gross = £3818.56
Tax = £644.25
NI = £348.93
SL = £213

August
Gross = £3770.97
Tax = £624.65
NI = £347.98
SL = £209

September
Gross = £2438.25
Tax = £148.55
NI = £211.95
SL = £89

OT Late Pay
Gross = £547.37
Tax = £162.50
NI = £65.68
SL = £49

Gross pay to date: £21,463.01
Taxable Pay to date: £21,463.01
Tax to date: £3,284.70
Tax code: 1060L


Please note on two occasions (May and Sept) my payroll dept. have messed up and I've had to get them to do a late payment for my OT.

your tax to date is exactly correct as you are (pro-rataed ) about 272 into 40% tax

pelirocco

Zammo76 wrote: »

What attitude?

Someone was being condescending to me and I simply asked them to back off as the whole process is confusing and as said previously not very transparent.

BTW I did try to google how tax free allowance works but it wasn't coming up with any descriptions saying how it did. I've read the information at the link you supplied and there is no explanation as to how they deduct your tax free allowance from your wage. However someone on here was kind enough to point that information out.

Tax to me is a necessary evil, unfortunately its been set at such a high rate by the current government that it is now effecting mine and a lot of other peoples ability to be able to pay the mortgage, bills, childcare, food and actually be able to have some sort of quality of life. As for me spending to much that simply is not true after I have paid out on all of the above I have a little over £100 pounds a week for myself, which I then have to use for money to eat at work and also to commute in.

£100 A week left over isn't bad , it's not a case of what you earn , its what you spend . To many having your own house is a pretty good quality of life