Unexpected spike in monthly tax payment

blackeagle

Hello All,
I have looked at the readily available tools but could not figure out why I have been charged more than 2x my regular taxes all off a sudden in this month's payslip.
Basically, as of last month, my tax bracket has become 400L from 1250L driven by some company benefits.
I am aware this means my tax free allowance drops by about £8.5k. But my monthly tax payment has gone up from about £900 a month to £2.4k a month which really does not make sense to me. I have done some maths below on a monthly basis and was able to back-calculate my previous tax figure but my current one (right column) supposed to be much lower than the £2.4k I am being charged. Any ideas why this could be? This would mean paying £1.5k incremental tax just on a monthly basis and seems too much to me unless I get sth wrong. Many thanks in advance for your help!

Previously (1250L) Now (400L) Earnings 4,900 Earnings 4,900 Tax-free allowance 1,042     Tax-free allowance 333 Post-allowance 3,858 Post-allowance 4,567 20% First bracket tax 625 20% First bracket tax 625 40% Second bracket tax 293 40% Second bracket tax 577 Net 3,982 Net 3,698 Total Tax Paid 918 Total Tax Paid 1,202

molerat

Does your tax code have an X or M1 after it ?  If not then your tax has taken the whole year to date into account, effectively back taxing you on the previous months earnings using the new code, and will correct itself next month.  What is you total income year to date, total tax year to date and month shown on that last payslip ?

blackeagle

molerat said:

Does your tax code have an X or M1 after it ?  If not then your tax has taken the whole year to date into account, effectively back taxing you on the previous months earnings using the new code, and will correct itself next month.  What is you total income year to date, total tax year to date and month shown on that last payslip ?

Thanks for the help!
My tax code does not have an X or M1 after it.
Gross pay YTD is ~28.5k and tax YTD is about 7k. My monthly tax just for this month alone has been 2.4k though.
I hope it will reverse itself eventually but it would be very helpful to understand the underlying maths so that I can keep track of it in case they over-tax.
Many thanks!

[Deleted User]

The second column is indeed the correct tax payable each month on a code of 400 L. However, because the code has been reduced and NOT operated on a month 1 basis, there has been a recoup of the tax not deducted as a result of being on the higher code in the previous four months.

How do we arrive at the difference? 

The original personal allowance was 12500. It is now 4000. This is a difference of 8500 which, at a tax rate of 40%, equates to £3400 or £283,33 per month.

Rounding up, the difference  is £284 per month and from April to August this would equate to 5 x £284 = £1420 (if we are talking about September payslip) and I presume this is the additional tax paid in September . It is surprising that the month 1 was not operated given the large amount - this would have meant that the £1420 would have been ‘parked’ until review at the end of the tax year. However, it is now collected and your net pay should be constant at £3698 assuming no further changes to pay rate or tax code.

Jeremy535897

When your code falls from 1042 to 333, that is for the whole year, so they have to collect the underpayment (1042-333 at 40%) in respect of the previous say 4 months in month 5. The underpayment is about £284 a month, as you have calculated, so if it was 4 months' worth, plus the current month, that would be £1,420 or so on top of the £918, which is £2,338. Next month the tax will be around £1,200 as per your figure.

Caz3121

Is your latest payslip for month 5 or month 6?
there is a difference of 709 per month tax free...which would incur £284 per month additional tax (matching your figures)
If month 5 then the catchup will have taken an additional 4 x £284 = £1136 (for the previous months), if month 6,  5 x £284 = £1402 to bring you up to date. Next month should be as per your calculations

blackeagle

[Deleted User] said:

The second column is indeed the correct tax payable each month on a code of 460 L. However, because the code has been reduced and NOT operated on a month 1 basis, there has been a recoup of the tax not deducted as a result of being on the higher code in the previous four months.

The difference  is £284 per month and from April to August this would equate to 5 x £284 = £1420 (if we are talking about September payslip) and I presume this is the additional tax paid in September . It is surprising that the month 1 was not operated given the large amount - this would have meant that the £1420 would have been ‘parked’ until review at the end of the tax year. However, it is now collected and your net pay should be constant at £3698 assuming no further changes to pay rate or tax code.

Jeremy535897 said:

When your code falls from 1042 to 333, that is for the whole year, so they have to collect the underpayment (1042-333 at 40%) in respect of the previous say 4 months in month 5. The underpayment is about £284 a month, as you have calculated, so if it was 4 months' worth, plus the current month, that would be £1,420 or so on top of the £918, which is £2,338. Next month the tax will be around £1,200 as per your figure.

Thank you very much Both. This makes a lot more sense now and it has been very helpful as I am new to the UK tax system. I will keep an eye on the reversal next month.

chrisbur

Do you  have the notice of tax code change; worth checking if this should have been applied on a non-cumulative basis.  If this is the case there should be a note on the advice.