PAYE tax lower this month?

katie07

Hi everyone,

I got paid today and noticed that my take home pay is around £200 more than it usually is.  I checked my payslip, and my basic pay hasn't changed (was hoping I'd been given a payrise!) but the PAYE deduction is around £200 less than it was last month.  Does anyone know why this could be??  My tax code hasn't changed (1245L) and the other deductions were the same (although NI was around £10 less).  I got paid a bonus last month which I guess could've put me in the higher tax bracket for that month's earnings, so could this be why?

Obviously I'm happy to have a bit of extra cash this month but I'm concerned that it's a mistake and HMRC will come back to me at a later date for the unpaid tax.

Thanks all

[Deleted User]

Your assumption on the bonus is correct. PAYE works on an average basis. Take your total income for April and multiply it by 12. Did that take you over the £50000 annual limit (other things being equal) before you hit the 40% bracket. I suspect it did. The tax system operates on what your projected salary will be over the whole twelve months of the tax year. 

Now multiply the total of the two months salary by 6 - the total is lower. If it is below 50000 the tax that you will pay each month will be the average of the last two months from now on. If it isn’t, it may take another month or so before your tax levels out.

chrisbur

katie07 said:

Hi everyone,

I got paid today and noticed that my take home pay is around £200 more than it usually is.  I checked my payslip, and my basic pay hasn't changed (was hoping I'd been given a payrise!) but the PAYE deduction is around £200 less than it was last month.  Does anyone know why this could be??  My tax code hasn't changed (1245L) and the other deductions were the same (although NI was around £10 less).  I got paid a bonus last month which I guess could've put me in the higher tax bracket for that month's earnings, so could this be why?

Obviously I'm happy to have a bit of extra cash this month but I'm concerned that it's a mistake and HMRC will come back to me at a later date for the unpaid tax.

Thanks all

Without seeing the figures this can only be a guess; but I would be prepared to put 50P on it being the answer.
Last month when you got the bonus this pushed you into the 40% tax band.  This month your tax allowance for 20% tax increased as it does each month and as your earnings were now lower some of this extra 20% allowance meant that some of the tax paid last month at 40% could now be converted to tax at 20% which lowered your tax for this month.
Depending on exact figures this may continue for further payments or this month may have adjusted all the 40% tax to 20% tax.
If you want exact working then will need the details of taxable pay to date and tax paid to date; along with taxable gross figure for month.

katie07

Thank you for the helpful replies.

purdyoaten2 - I did the calculations you suggested and the April + May x 6 comes out at just short of £50k and April x 12 is over, so this must be it.  

chrisbur - appreciate the offer but I think these rough workings will do me ok for now, thank you

Thanks again guys!  Really appreciate it. 

[Deleted User]

Great - as I said, if you average the salary totals and project for twelve months you should be able to ascertain whether you hit the higher rate threshold. That’s the method that I used to teach this many years ago - glad to help. Relax.

chrisbur

purdyoaten2 said:

Great - as I said, if you average the two tax totals, this should roughly be the amount of the deduction henceforth. That’s the method that I used to teach this many years ago - glad to help. Relax.

Surely if you average the two tax totals so far you get the average tax paid on one normal month plus one month which includes the bonus.  I assume that the bonus is not being paid every second month so the ongoing tax figure will have to be substantially less than the average figure for these first two months.

[Deleted User]

And you are absolutely right. I wandered aimlessly from averaging salary to averaging tax. Some moments are more senior than others. I will amend.