Contractor- Crazy on This Tax Deduction

dranzer01

Im a contractor and I received my first pay - day rate 450; after deductions I got around £343 (this is under an umbrella)

Tax deducted was around £33 (This was one days work as I started on a friday)

I have now received two weeks worth of billings (as timesheet(s) were approved late) , and the tax has ridiculously jumped from taking £33 to totalling a tax deduction of approx £1,400 , with a student loan deduction of approx £340.

Am I going crazy here? Why is this so high?

It appears the tax code im on is 1257L W1


I look forward to any insight into this , otherwise there would be no point in me carrying on this as its robbery.

(I get paid weekly)

Regards,

Dazed_and_C0nfused

Tax of £33 on a weekly payment would be deducted from taxable pay of £407.

Tax of £1,400 on a weekly payment would be deducted from taxable pay of about £4,000 i.e annual pay in excess of £200k so the tax would be significantly more as some 40% and 45% tax would be deducted.

You do understand what is deducted during the year is just provisional, the actual tax due is established after the tax year ends and you are asked to pay any extra due or HMRC will refund anything overpaid.

dranzer01

Just seen W1 means emergency tax code - so I would need to get that adjusted asap and monies sent back to me.

dranzer01

Dazed_and_C0nfused said:

Tax of £33 on a weekly payment would be deducted from taxable pay of £407.

Tax of £1,400 on a weekly payment would be deducted from taxable pay of about £4,000 i.e annual pay in excess of £200k so the tax would be significantly more as some 40% and 45% tax would be deducted.

You do understand what is deducted during the year is just provisional, the actual tax due is established after the tax year ends and you are asked to pay any extra due or HMRC will refund anything overpaid.

Thanks - whether provisional or not, I dont think this type of framework is conducive in what im trying to do- so it either needs to change pretty quickly and monies sent back to me or ill probably look elsewhere.

Saying that, does this mean that that figure of tax will be deducted every week/two weeks? How long before it re-aligns to a lesser figure? 

Dazed_and_C0nfused

If you are going to earn £4,000 every week then the emergency tax code (1257L) won't deduct enough tax as you won't, in a full tax year, be entitled to any Personal Allowance.

What was the taxable pay shown as on your latest payslip?

Linton

HMRC do not know tyou have started with a new employer until after your first taxable pay.  They will then issue a new tax code.  In the meantime you will be charged on the emergency tax code which effectively assumes that you will be paid that amount every week or month depending on your payment frequency for the rest of the tax year.  Any tax overpayments will be automatically corrected in subsequent weeks/months.  It is complerely normal and the employer has no choice.  All tax payments are as specified by HMRC.

dranzer01

Dazed_and_C0nfused said:

If you are going to earn £4,000 every week then the emergency tax code (1257L) won't deduct enough tax as you won't, in a full tax year, be entitled to any Personal Allowance.

What was the taxable pay shown as on your latest payslip?

450/day - Gross

2,250/week - Gross

Looks like it says 'earnings' - employee gross earnings - '£3,944'

deductions:

tax - 1376
employee NIC- 153
student loan- 320

Dazed_and_C0nfused

The tax is (provisionally) correct for £3,944.

If you only earned £2,250 the tax would only be £658.20.

Grumpy_chap

dranzer01 said:

Im a contractor and I received my first pay - day rate 450; after deductions I got around £343 (this is under an umbrella)

Working inside IR35, Umbrella Company, for a day rate of £450, take home typically around £1,400 per week for a standard week.

The £343 take home for one day seems high from £450 gross.

The later numbers you gave are not clear:

dranzer01 said:

450/day - Gross

2,250/week - Gross

Looks like it says 'earnings' - employee gross earnings - '£3,944'

deductions:

tax - 1376
employee NIC- 153
student loan- 320

Can the UC explain the £4k figure?

Increasing pension contributions is the most effective way of mitigating tax liability, particularly if the UC will operate salary sacrifice.

dranzer01

Grumpy_chap said:

dranzer01 said:

Im a contractor and I received my first pay - day rate 450; after deductions I got around £343 (this is under an umbrella)

Working inside IR35, Umbrella Company, for a day rate of £450, take home typically around £1,400 per week for a standard week.

The £343 take home for one day seems high from £450 gross.

The later numbers you gave are not clear:

dranzer01 said:

450/day - Gross

2,250/week - Gross

Looks like it says 'earnings' - employee gross earnings - '£3,944'

deductions:

tax - 1376
employee NIC- 153
student loan- 320

Can the UC explain the £4k figure?

Increasing pension contributions is the most effective way of mitigating tax liability, particularly if the UC will operate salary sacrifice.

My thoughts exactly on what you just said about the £1,400 a week. (Based on what ive seen in this payslip, I am getting on average £1,045 a week) 

Grumpy_chap

Ask the UC.  Most are quite helpful and will explain or provide an illustration, or both.  Errors in first payslip are not uncommon, unfortunately, but do usually get corrected easily.

The £1.4k did not consider student loan deduction, if that applies to you.