Changing full time to part time employment: How PAYE tax is calculated

Samrazakir

I am calculating what the net salary one can get if one moves from full time to part time and somehow I am baffled at the tax calculations I am getting from PAYE calculator available at HMRC website (http://payecalculator.hmrc.gov.uk/PAYE1.aspx). It is deducting half of the part time salary in a term called regulatory limit. Is there any person knowledgeable in that and does that mean moving full time to part time causes financial disadvantage in terms of tax and NI?  

Jeremy535897

Regulatory limit is where the application of the code would result in more than half your pay being taken in tax. It can happen where the code changes for the worse, and would be more likely if accompanied by a reduction in gross income at the same time.

Samrazakir

Thank you, is it the tax code that causes it to change for worse? how to avoid that? I was doing monthly PAYE calculations on a combination of full time salary months followed by part time salary months. This causes significant reduction in salary for part time salary months (due to regulatory limit). However, when I use the yearly annual take home calculation on total gross figure including both the full time and part time salary months, the net salary I calculate is much more than what I get from monthly PAYE calculations, is this plausible? does this mean one will be entitled to refund at the end of the year? 

badmemory

Are you receiving a pension (or similar) which is untaxed at source?  This would be reflected in your tax code.  As Jeremy said they can only take 50% of your taxable income in tax, regardless of how much you owe.  Once HMRC realise that they are not getting all they are due they will bill you, save up though as it may take a couple of years & they really don't seem to like anyone filing self assessment any more.  I'm on my third year of this (2 completed) & just wish I was getting better interest rates on my savings.  Still not been billed although I expect it before the end of the year,

chrisbur

Samrazakir said:

I am calculating what the net salary one can get if one moves from full time to part time and somehow I am baffled at the tax calculations I am getting from PAYE calculator available at HMRC website (http://payecalculator.hmrc.gov.uk/PAYE1.aspx). It is deducting half of the part time salary in a term called regulatory limit. Is there any person knowledgeable in that and does that mean moving full time to part time causes financial disadvantage in terms of tax and NI?  

The calculator that you are using will if used correctly give exactly the same result as you would get on your payslip.  I would expect the result to be as your earnings went down your tax would also go down there would not be any problems with regulatory limits assuming all else remained the same.  For example if you normally pay tax in the 20% band and your earnings reduced by £100 your tax would reduce by £20.  That is you no longer pay the 20% of the £100 you no longer get paid.   Indeed if they went down enough it would show a tax rebate. 
I suspect that you may be entering something wrongly can you give the figures you are entering so that I can check them.

Edit
Just to check have there are no problems with the calculator run some figures through it.
Tax code 1250L paid £2000 on month 1 tax was £191.40
Paid £1500 on month 2 tax was £91.60
Drop of £500 gross when paying tax at 20% is £100  (apart from the 20p which is a quirk of the way PAYE is calculated)

chrisbur

Samrazakir said:

Thank you, is it the tax code that causes it to change for worse? 

Just noticed this, can you explain why you are changing the tax code?

Samrazakir

Thanks, here are the calculations when salary went down to £ 880 from around £4500, cannot understand when there is a tax refund due of ~£-26. How is the net salary calculated, normally it is gross - NI - tax, what is the role of the regulatory limit and will it be deducted from gross salary further? 

Total taxable pay:	£20,867.51
Total tax due to date:	£4,173.40
Total tax due this period: (R indicates a refund is due)	£ R 26.60
Regulatory limit:	£440.00
Tax due at end of current period:	£-26.60
Tax not deducted due to regulatory limit:

chrisbur

You had a tax rebate here.  The rebate is added to your gross pay.  So in this case net would be gross plus rebate minus NI if there was any, in this case earnings lower than threshold so no NI.  The figures for regulatory limits are just there if required in this case not required so ignore them.
NI calculator here if required....
http://nicecalculator.hmrc.gov.uk/Class1NICs1.aspx

EDIT Wrong on the NI not due correct figure lower down from unholyangel

Jeremy535897

It looks as if it displays the regulatory limit, whether or not it is relevant. As there is no figure next to the "Tax not deducted due to regulatory limit" line, you can see it does not apply. They could also have had a line in that said "Additional tax rate tax on income over £150,000" and that would have been nil as well. Just ignore it.

Samrazakir

Thank you, my employer just calculated the net salary as follows:
 gross(£880) - tax (£440) - NI (£20)  =£420
I am baffled at their calculations as I get the above figure using PAYE tax calculator, it seems the regulatory amount (£440) should not be relevant here, not sure why employer put it in the tax, where I should have been getting tax rebate instead of further tax deduction? Please correct if I am wrong.

unholyangel

chrisbur said:

You had a tax rebate here.  The rebate is added to your gross pay.  So in this case net would be gross plus rebate minus NI if there was any, in this case earnings lower than threshold so no NI.  The figures for regulatory limits are just there if required in this case not required so ignore them.
NI calculator here if required....
http://nicecalculator.hmrc.gov.uk/Class1NICs1.aspx

Monthly thresh for this year is £792. So £10.56 NI due. 

Samrazakir said:

Thank you, my employer just calculated the net salary as follows:
 gross(£880) - tax (£440) - NI (£20)  =£420
I am baffled at their calculations as I get the above figure using PAYE tax calculator, it seems the regulatory amount (£440) should not be relevant here, not sure why employer put it in the tax, where I should have been getting tax rebate instead of further tax deduction? Please correct if I am wrong.

Why the heck is your employer deducting £440 in tax if it says you're due a tax refund? Both cannot be true. Even the NI looks wrong if your gross was only £880. 

What was the date of the pay, what is your tax code & how often are you paid?