Tax on backpay in one month and thresholds

tightasagnats

Hi folks - I have a tax question for my aunt -

Usually salary is £2065 gross and £1500ish after tax and pension etc.

She earns an extra amount now for teaching and this was due to start being paid in Oct for 9 months but was delayed, so in Dec the pay will have an additional £1245 (3 mos backpay plus additional pay for some interviews) and she would like to know whether this would be taxed in part at 40% - for that month - (it would look that month as if she earns over the threshold but in fact does not and would not over the year) - the teaching would only be an additional £300 gross each month for nine months.

Payroll could only give her the gross figure at this point. I said that I imagine payroll being aware that it is backpay would ensure it was taxed fairly, but then perhaps it would be taxed and then refunded? Tax calculators online assume a 40% for part of it rate based on the gross amount.

chrisbur

If her tax code is the usual 1060L or something like this and it is being applied on a cumulative basis then tax will be at 20% on the back pay. If the tax code is around 1060L and is applied on a non-cumulative basis £3310 (£2065 = £1245) in a month would not be enough to trigger any 40% tax so would be best to confirm what tax code and tax basis are being used. Tax basis will usually follow tax code on payslip and may be something like cumulative, non cumulative, 1, 0, X, C, N/C .

jem16

tightasagnats wrote: »

I said that I imagine payroll being aware that it is backpay would ensure it was taxed fairly,

It doesn't work that way. It will be taxed appropriate to Month 9.

but then perhaps it would be taxed and then refunded? Tax calculators online assume a 40% for part of it rate based on the gross amount.

That's assuming a Month 1 calculation which isn't likely to be happening here.

Assuming she is on a normal cumulative tax code ( this would need to be checked ) of 1060L in Month 9 she will have £10,600/12*9 = £7950.

Then the basic rate band of £31,785/12*9 = £23838.75

So total to still be in the 20% band at Month 9 is £31788.75.

Your aunt's total taxable earnings will be £2065*9 = £18,585 plus £1245 = £19830 so she's still within the 20% tax band at this point.

tightasagnats

Thank you folks for all your help. The tax code has CUMU after it which would appear to be cumulative - I can't remember the first bit but I think it was something like 1060L as suggested.

She'll be pleased! Bit more cash for pressies.

tightasagnats

jem16 wrote: »

Then the basic rate band of £31,785/12*9 = £23838.75

So total to still be in the 20% band at Month 9 is £31788.75.

Your aunt's total taxable earnings will be £2065*9 = £18,585 plus £1245 = £19830 so she's still within the 20% tax band at this point.

Actually it will be :

£2065*12 (not nine - her regular job is all year) = £24,780 plus £3400 (the teaching part) = £28180 approx. They pay the teaching bit over 9 months, but the regular salary over 12.

tightasagnats

Just to update if anyone is interested for their own sake, the payment was processed on a separate payslip in the end, under BR tax code, which will work out OK at the end of the year as tax allowance comes off of her main job. Thanks to all, from both.

jem16

tightasagnats wrote: »

Actually it will be :

£2065*12 (not nine - her regular job is all year) = £24,780 plus £3400 (the teaching part) = £28180 approx. They pay the teaching bit over 9 months, but the regular salary over 12.

Just noticed this post. The 9 was because December is Month 9 in the tax year so I was allowing 9 months worth of allowances in each tax band and working out the pay that your aunt would have received so far having worked for 9 months and not 12.

agrinnall

tightasagnats wrote: »

Just to update if anyone is interested for their own sake, the payment was processed on a separate payslip in the end, under BR tax code, which will work out OK at the end of the year as tax allowance comes off of her main job. Thanks to all, from both.

How was the employees NI treated on this separate payslip? There is a possibility that she has underpaid as a result.