Understanding PAYE tax deductions (change to monthly pay)

CMB_89

Hi

I used to get paid every 4 weeks but have been moved to monthly pay (same company). Payroll made a passing mention to it affecting the tax for the month and it being right after that.  However, I didn’t realised it would affect it to the tube of £850ish. I assume this will balance out in the year? How does that work? 

I’m making assumptions it’s either due to HMRC thinking I’m earning that each month, or not having a personal allowance twice a month is that correct? 

Pay 1 - 08/04/2022 (four weekly but one day short due to change to monthly) 

Basic pay - £3,340

Tax - £473

NI - £341

With pension and student loan taking total deductions to £1,108

Total pay -£2,231

Pay 2 - 29/04/2022 (monthly pay) 

Basic pay - £3,808

Tax - £1,336

NI - £395

With pension and student loan taking total deductions to £2,075

Total pay -£1,733

Thanks 

p00hsticks

What is your tax code ?

 

Dazed_and_C0nfused

It's just a temporary issue.

Tax is based on the facts.  And the facts here are that you are earning c£86k at the moment (month 1 of the tax year).  So plenty of 40% tax needs to be paid.

But if you earn £3,808 again at the end of May your annual earnings will drop to c£66k.  And you will effectively get back some of the 40% tax paid this month by paying less at the end of May.

If end of June is another £3,808 then your annual earnings will drop again to c£59k.

And so on each month until you drop back into just the basic rate bracket.

Don't forget as you will have earned an extra £3,340 this tax year you are very close the higher rate threshold so any other taxable income could easily tip you into higher rate.

NB.  The figures above assume your basic pay is all taxable but the taxable amount may be slightly less depending on the method used to contribute to your company pension.

CMB_89

p00hsticks said:

What is your tax code ?

 

It’s 1263L 

CMB_89

@Dazed_and_C0nfused thank you very much.

 Does that mean I’ll pay 40% tax on some income next month too as the system will think I’m earning £66k?  I assume at some point I’ll get the tax refunded? 

Grumpy_chap

It is because of two pay days in one tax month.  It will resolve with time.  Annoying, though.

Dazed_and_C0nfused

CMB_89 said:

@Dazed_and_C0nfused thank you very much.

 Does that mean I’ll pay 40% tax on some income next month too as the system will think I’m earning £66k?  I assume at some point I’ll get the tax refunded? 

Yes.  But you won't ever get an actual "refund".'   You will just pay a bit less than you would normally do.

You can use this simple calculator to check next month's tax.

http://payecalculator.hmrc.gov.uk/PAYE0.aspx