HMRC Tax Calculations

pfas

Evening everyone

I've a query around tax codes and tax rates that HMRC may potentially assign to me next month as its happened to some others in our business.

My annual salary is 23k however we've been lucky to have lots of overtime this year and I've earnt 30k up to month 8 (November).

HMRC appear to be changing some employees tax rate to 40% as they're projecting they will reach higher rate tax by April but everyone is keeping track to ensure we don't hit this rate. This is going to cause financial difficulties if 40% is deducted for some employees.

Can you ask HMRC to reduce the rate back to 20%?

Any help much appreciated.

Dazed_and_C0nfused

HMRC don't apply the tax rate to your wages, your employer does.

£30,000 at month 8 gives an annualised income of £45,000, well short of the higher rate threshold.

What exactly has happened?  Have you had a new tax code and if so what was it?

Finally, you do know it is only 40% on the amount over the higher rate threshold.  So if you earned say £50,300 in taxable pay you would only normally pay higher rate tax on £300.

There can be other complications but at this stage you don't seem to be close to higher rate.

unholyangel

Your tax code doesn't tell your employer how much to tax, it tells them how much not to tax.

If hmrc have issued new codes, there's something else going on. Benefits in Kind or perhaps the employer using a new payroll provider and not transferring you over properly leading to hmrc thinking you have 2 jobs. 

What does your personal tax account say? 

molerat

Tax is calculated on your year to date pay, tax due year to date minus tax paid year to date, so if you do happen to dip into higher rate tax one month you will get it back the following month if it is no longer due.

Hasbeen

Depends where op is? if in the Peoples Democratic Republic of Scotland the higher band is £43431 at 41%  LOL 

[Deleted User]

The op refers to the fact that other employees have paid tax at 40% and that he may ‘potentially’ be in the same position next month. Presumably they earn more?

On-the-coast

pfas said:

HMRC appear to be changing some employees tax rate to 40% as they're projecting they will reach higher rate tax by April but everyone is keeping track to ensure we don't hit this rate. This is going to cause financial difficulties if 40% is deducted for some employees.

OP - it sounds as though you and your fellow employees badly misunderstand the benefits of earning more money... 

for instance you could also pay less tax if you earned below £12500... but I doubt that sounds attractive.

The same applies to earning more than £50,000 - it’s unambiguously good for you, even if you pay more tax on the money earned over £50k.

On a one-off monthly basis you might have a few more marginal deductions for income tax... but (and particularly so far into the tax year) you’d also be taking home a decent amount of extra overtime pay.   

If you make any pension contributions at all you’ll be receiving tax relief at 40% too helping offset these minor additional costs,  and finally (and importantly) the employee contribution rate for NI drops significantly at earning over £50K, so you would only see about and additional 10% tax increase.

... there is a downside in that child benefit will get withdrawn at earnings over 50K... and this is the only real hardship i can see in this circumstance (particularly if you have a large family). That’s the only circumstance in I’d be careful to keep track of the total likely earnings for the year. Don’t worry you won’t need to tell the Child Benefit people until it looks certain that you will exceed the limit (which can still be offset for a while by additional pension contributions). 

So please do yourself a favour and earn away... (unless you hate your job).