Reduced Personal Allowance

zooks

Hi, I have tried searching the forum for an answer to this but to no avail. Hopefully will know the answer to this

I'm a PAYE employee earning aprox £75k/yr and I'm on salary month 11. Due to overtime worked this year and accrued leave adjustments I can see I'm going to be at £110k gross come years end pay day.
I think this means I am going to lose about £5k of my personal tax allowance.
As I understand it the personal allowance is spread over a 12mth period and as its month 11 my allowance for this year is nearly gone.

A question, does this £5k get taken in one go from my month 12 pay or does any adjustment get taken from next years allowance?

I realise its a bit late to be considering this now but I still have time to pay into my pension AVC if I have to.

Thanks for reading

Dazed_and_confused

Neither.

You will be asked to complete a self assessment tax return for 2017:18 and any tax owed will be payable by 31:01:2019.

If you complete your return early enough (by 30:12:2018 I think), the amount owed is less than £3,000 and you are still a PAYE employee earning a reasonable amount then alternatively you can have the tax owed collected by a restriction to your 2019:20 tax code i.e. bit extra each payday from April 2019 through to March 2020.

Personal pension or SIPP are other pension alternatives you could consider even though time is getting tight for the current tax year.

Remember loss of the Personal Allowance is based on adjusted net income (Google it) so any other income you have such as company benefits, dividends or savings interest also need to be considered.

zooks

Dazed_and_confused wrote: »

Neither.

You will be asked to complete a self assessment tax return for 2017:18 and any tax owed will be payable by 31:01:2019.

If you complete your return early enough (by 30:12:2018 I think), the amount owed is less than £3,000 and you are still a PAYE employee earning a reasonable amount then alternatively you can have the tax owed collected by a restoration to your 2019:20 tax code i.e. bit extra each payday from April 2019 through to March 2020.

Personal pension or SIPP are other pension alternatives you could consider even though time is getting tight.

Remember loss of the Personal Allowance is based on adjusted net income (Google it) so any other income you have such as company benefits, dividends or savings interest also need to be considered.

Thanks for the quick reply.

Your comments regarding pensions made me realise I have made a basic error in not excluding the 11% I pay into my company pension contributions & additional contributions.
I'm assuming I reduce my taxable income by this figure which will put me under the £100k plus any net adjustment figures.

Please rest assured my line of work has absolutely nothing to do with finance

Dazed_and_confused

Possibly. "Salary" is irrelevant for tax purposes what you are interested in is taxable pay which is usually itemised on payslips.

It's possible that your £75,000 salary may only actually be £66,750 taxable pay but your latest payslip should tell you what you need to know.

ChuckMountain

The other thing to note is that if your adjusted net income was £110k then you yes you would lose £5k of your personal allowance but your additional tax bill would be 40% of that £5k so you would owe the tax man £2k not £5k.

Payroll cannot deduct more than 50% of your pay in tax in a given month but that's probably unlikely anyway in this case.

With the change in pay reporting you would need to check that payroll has deducted the right tax as your tax code will still probably have your full allowance. Also check what HMRC put for 2018/2019 as they will assume you will earn similar again and decrease your tax code. If you are unlikely to earn the same then you need to notify them.

As Dazed says you would have to fill in SA to pay the additional tax and that can be done before 31st Dec 2018 to recover in tax code for 2019/2020.

Also you could consider charity donations to reduce your adjusted net income if you are close to the amount. You can do this up until the point you submit your tax return.

If you are in the loss of personal allowance bracket (aka 60% bracket) then for every £100 you donate to charity, the charity will get £125 and it will cost you £50 after a rebate of tax and reduced net income (at least until your PA is fully restored anyway)

polymaff

https://www.gov.uk/guidance/adjusted-net-income