Tax question with pay

curtis122

Can someone who has good knowledge of tax please explain my tax codes to me and how it effects my pay. Long story short I work through an umbrella company as I've done a few short contracts, they sort out all my tax on my earnings pay the taxman and then obvioulsy pay me whats left. I've tried to speak to them in the past about stuff tax wise but I get so confused by it all, or it maybe the person I spoke to just did not explain things very well but now I've just had my recent payslip so wanted to ask any tax experts on here to try to explain whats going on. 

I got a payslip back in May and my tax code was 876L I got paid for 2 weeks around £1200. I then was off work due to covid, managed to get a short gig recently for a month and got my payslip for Sept showing tax code 853L for 4 weeks got paid around £1600. So I see it as, compared to May for another 2 weeks (10 actual days) work I only earnt another £400. I was expecting to see it be £2k or more given 2 weeks was £1200 and now I'm confused. I've not worked much this year due to covid so I am assuming I still have my yearly allowance or some left over which confuses me even more why 4 weeks pay was not much more than 2 weeks

A side question also on the basis of how I work ie short term contracts over the year, if I do not use my yearly allowance up do I lose it or will my tax be readjusted to take in account what I have not used (if that makes sense) I do have to do a tax return each year as I have an rental property so will this get taken into account on that when I enter my earnings, tax etc and then be paid back any tax owed for it through that way?

chrisbur

I am afraid that there is not enough information here to give any definite answers.
Your tax code is not the normal tax code, do you know why you have a reduced tax code?
The tax you have paid may be affected by tax paid in previous months or may just be decided on your earnings in that month, I cannot tell from your details. 
If you want an accurate check on your tax and explanation of how it was arrived at you would need to give more details.
From each payslip 
Taxable gross 
Tax paid
Tax code
Anything with the code eg cumulative non-cumulative X 0 1 month 1 mt1 or similar
Taxable gross to date
Tax paid to date
Month number or date paid.

Jeremy535897

chrisbur said:

I am afraid that there is not enough information here to give any definite answers.
Your tax code is not the normal tax code, do you know why you have a reduced tax code?
The tax you have paid may be affected by tax paid in previous months or may just be decided on your earnings in that month, I cannot tell from your details. 
If you want an accurate check on your tax and explanation of how it was arrived at you would need to give more details.
From each payslip 
Taxable gross 
Tax paid
Tax code
Anything with the code eg cumulative non-cumulative X 0 1 month 1 mt1 or similar
Taxable gross to date
Tax paid to date
Month number or date paid.

My guess would be that the reduced code is because it takes rental income into account, but as you say, more details are required.

curtis122

My latest payslip has just under 9k for Gross YTD,  £1200 Tax paid YTD, taxable gross basically 3k and it says W1M1 - true, 853L.
My previous payslip I had in May for the 2 weeks I worked in April has W1M1 - False,  Gross Pay YTD £4700, Tax YTD £700, gross pay £1500. 876L
I'm confused when you say I'm on reduced code, what does that mean I know the figure is what I can earn before taxed but to be honest I would have no clue if that should be any different.  I have only worked 9 weeks this FY due to covid so far so should not have used up my annual allowed allowance yet could that be a reason?

Dazed_and_C0nfused

You can easily check the exact make up of your tax code (and if HMRC think it should 853L) on your Personal Tax Account on gov.uk.

curtis122

the thing is they always say check your tax code is correct, but how do you know even if you look?? I know hardly anything about tax properly so I have to take their word for it!

Jeremy535897

This raises more questions than it answers, but here are some basics.

Most people have a code of 1250L, because they have a personal allowance of £12,500 (divide by 10 to get the number in the code), and L means their partner has transferred no allowance to them. Most people have that code applied on a cumulative basis. That means that in month 1 you get 1/12 of your allowance. In Month 2 you get 2/12 less whatever was used in month 1, so if you weren't paid in month 1, you would get 2 months of allowances in month 2.

W1M1 false means the cumulative basis applies. W1M1 false means it doesn't, so you just get 1/12 of your allowance in each month you get paid, whatever and whenever you were paid in the earlier part of the tax year.

Since May your code has reduced from 876L to 853L, and is now non-cumulative. I speculated that HMRC may be reducing your allowances to take account of your rental income (by reducing the allowance set against your wage, they can set some of it against your rental income to eliminate the tax they expect to be due on that rental income).

What doesn't make sense is that April is month 1, so the cumulative (YTD) wage should be the same as the monthly wage, but you say gross pay YTD was £4,700, but gross pay for the month was £1,500 and you received about £1,200. There will be some NIC to take into account as well as tax, but this looks like you got paid twice in month 1?

Moving on to September (month 6), you say YTD gross wage is around £9,000, and gross pay for September was £3,000. Gross pay YTD should have been £3,000 plus £4,700 from April, so it looks like you had some income in between the two.

curtis122

Jerermy you definately know your stuff  as I've logged onto HMRC my tax code with them is 853LX which according to them means my tax is based on my pay in each pay period, not the whole year and means I'm now paying tax on a non cummulative basis exactly as you have said.
What may have effected this given what you have said and from looking on HMRC is 2 things, the first I went onto JSA for a month in July, I got from what I remember about £124 before I found some more work, the payslip for that work was the one with the W1M1 - true so maybe this was due to this and the tax man telling them this was what they had to tax me going forward?
Also from looking on HMRC I got paid a dividend from the company my husband owns back in April time I think it was, I completely forgot about this so this may explain why the YTD is higher,
I have a habit of looking at things as 'individual' so just see my 'work' pay/tax as just that on its own, our rental property pay/tax on its own and forget they are all linked and all effect each other of course any dividend which oviously gets classed as more income. Tax gets so confusing for me and I try not to think about it too much but I have to say I have learnt so much about tax just from this thread that I never knew. 

So the reason I got a lot less than expected for 4 weeks pay than expected is it to do with me paying a lot more tax because of things mentioned, extra income (dividend) and paying tax on a non-cummulative basis?

Jeremy535897

JSA is taxable, but the DWP does not deduct tax, so that may be why your code was reduced from 876L to 853L, although I would not have expected that to make your code non-cumulative.

A dividend from your husband's company (actually you must mean you own it jointly or you couldn't receive a dividend) is a different matter altogether, and is not subject to PAYE. It could never be part of a YTD figure on a payslip. But even if that company paid you salary, your umbrella company wouldn't know about it, so couldn't include it. It would be a separate employment with a separate code. All a code does is tell an employer how much tax to deduct from the pay that employer pays you. It doesn't tell them to add income into a YTD pay figure.

Dividends totalling up to £2,000 in a tax year are tax free, and then you pay 7.5% if you are a basic rate taxpayer. See https://www.gov.uk/tax-on-dividends

There are still unanswered questions therefore concerning the pay and YTD figures. You could ask your umbrella company to give you a breakdown of the pay, tax and NIC deducted for 2020/21, but it will all be put right when you file your 2020/21 tax return with details of your gross pay and tax deducted, JSA, dividends, rental income and anything else that needs declaring.

chrisbur

I am afraid that your posts are a bit confusing but it looks probable that the first payment you refer to was paid in month 2 of the tax year.  A tax month runs from 6 April of one month and ends on 5 April of the next.  When you earn the money is not relevant, the tax month is decided on the date it is paid.  To give a full explanation can you give the exact figures not aprox for the details I asked for in my previous post, for all pay slips relating to this tax year, ie anything paid from 6 April onwards. 

Ray_Coman

Perhaps you should check whether the tax code is cumulative or non-cumulative.  That would be indicated by X or M1W1 after 876L.  If the code is non-cumulative it will be even less straightforward to determine the reason for the amount of tax deducted at source.  I would suggest that you consider completing the following: form: https://www.tax.service.gov.uk/shortforms/form/P2
https://comanandco.co.uk/