Income tax

[Deleted User]

Hello all. I hope you're well
My daughter has started working after finishing Uni. My understanding is that she's allowed to earn £11,640.00 without being taxed (she had a job at Uni from which she earned £86.00 so she doesn't have the usual £12,500.00 allowance) but HMRC is saying that she can only earn £970.00 a month and then she will be taxed each month. If she earns ( for example) £1000.00 a month and is then taxed, she won't reach the yearly tax threshold by 5.4.2021 and so therefore she can surely claim back the tax paid for the year 20-21?
Can you advise please?
Thanks

chrisbur

This sounds like her employer is currently using the emergency tax code, I assume that a new starter checklist was completed advising that this was her only job and had worked somewhere else this tax year.  HMRC should in due course advise the employer of a cumulative tax code, usually 1250L and the details of past earnings.  These details will then be used by the employer and tax due since the start of the tax year will be recalculated and any over payment will be refunded.

[Deleted User]

The employer isn't using an emergency code. So is the personal tax allowance spread out over the monthly pay packets over the year ? I thought no tax was paid until the employee's pay exceeded the personal allowance but it seems from what HMRC has said that it divides the personal allowance by 12 and then takes tax each month if your pay exceeds THAT figure?
But starting work in September means that if tax is taken in this way.....too much tax will be paid, surely?

TadleyBaggie

Deleted_User said:

 I thought no tax was paid until the employee's pay exceeded the personal allowance but it seems from what HMRC has said that it divides the personal allowance by 12 and then takes tax each month if your pay exceeds THAT figure?

You are wrong and HMRC are right. If they did it your way nobody would pay any tax for the first few months and that just doesn't happen. It's spread over the whole tax year.

p00hsticks

Deleted_User said:

The employer isn't using an emergency code. So is the personal tax allowance spread out over the monthly pay packets over the year ? I thought no tax was paid until the employee's pay exceeded the personal allowance but it seems from what HMRC has said that it divides the personal allowance by 12 and then takes tax each month if your pay exceeds THAT figure?
But starting work in September means that if tax is taken in this way.....too much tax will be paid, surely?

It depends on whether the tax code is cumulative or a 'month 1' code.

If it's cumulative, then if the new employer has the details of how much she's earned / paid tax in previous emplyment then they'll take that into account and she shouldn't end up paying any tax until she's completely used up the first six months tax allowance.

If it's a 'month 1' code then payroll doesn't take into account what's been earned/paid in previous months and as you say, anything earned over 1/12th of the annual allowance will be taxed.

chrisbur

What tax code is the employer using?
Was a starter checklist done?
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/873648/Starter_checklist_English.pdf
If so which statement selected?
There are two ways a tax code is applied
Each month 1/12 of the allowance is given and then tax paid on earnings over that.  This is a non-cumulative tax code and is usually only temporary.  This is usually how the emergency tax code is applied and might be seen as for example 1250L week 1 month 1 but there are other ways it is shown though the 1250L would be the same
The other way is on a cumulative basis where as the tax year goes by you are given more of your annual allowance so at month 6 say you would get half your annual allowance month 7 7/12 th etc.  Your tota; earnings to date and taken and this allowance is set against them and tax is due on the rest.  Tax already paid so far is deducted from this tax due to date and that is tax due for that month.
When spoke to HMRC did they not say anything about this changing to a cumulative tax code?

[Deleted User]

Thanks all. This seems to have been sorted out now....we're waiting on her second payslip to check that its finally done and dusted. I didnt realise what TadleyBaggie and HMRC said....and now I do realise
Thank you all so much for your help.