PAYE- how does it work?

Edinburghlass_2

earned, not earnt

studentphil

Edinburghlass wrote: »

earned, not earnt

Okay, I shouldn't earn over my personal allowance as far as I can tell. Unless I do some overtime and then surely that is just taxed at 10 per cent unless I earn more than 2000 in overtime.

viktory

Erm, can I ask a quick question please, seeing as we are discussing tax? My son started working for Honda as an apprentice in August. He completed a P46 as he does not have a P45 (he is 16). So far, he is on emergency tax and has paid something in the region of £229 (or thereabouts). Clearly, he shouldn't pay any tax until he exceeds his allowance. So question is...will he continue to pay emergency tax until April and when is he likely to get a rebate?

Thanks

Hereward

viktory wrote: »

Erm, can I ask a quick question please, seeing as we are discussing tax? My son started working for Honda as an apprentice in August. He completed a P46 as he does not have a P45 (he is 16). So far, he is on emergency tax and has paid something in the region of £229 (or thereabouts). Clearly, he shouldn't pay any tax until he exceeds his allowance. So question is...will he continue to pay emergency tax until April and when is he likely to get a rebate?

Thanks

Your son will continue to pay tax if he is scheduled to earn more than his personal allowance; however, HMRC should sort of his proper tax codes within two months, so that he pays the correct rate of tax. Depending on his tax office, he may pay reduced tax until the correct amount has been paid or he might be entitled to a refund.

HTH

studentphil

That was what I filled in a P46.

Morglin

Your new employers should have notified the tax office that you are working.

Lin

Ebany

By the sound of things, you are actually paying the correct tax, your tax code is right, and any week/month (?) you earn over the tax free amount you should be payting tax on. A P46 is a standard form for anyone without a P45 - not a student form. It may just be that you haven't been earning enough to pay any tax yet.

As for how it works, as you know you get a tax allowance each year. For most people, this then gets divided down so you receive it evenly across the year, rather than having a few months paying no tax at all, and then being taxed like crazy the rest of the year. If you are paid monthly then your monthly tax free portion is ~£435, or for weekly it is ~£100. Anything you earn over this is taxed normally (remember there is a 10% band to apply first, which runs the same way - spread over the year).

When you start with a new employer, you generally start on a Week 1 or Month 1 basis, as they don't know what tax you have paid so far that tax year. This means each month is treated completely individually, you only have that months tax free and low tax allowances, and you pay accordingly. In theory, this means you will always have paid at least enough tax - as they presume you haven't underpaid at any previous job. You may overpay though if you have some tax allowance unsused from previous weeks/months.

Once things have been sorted out and either you have provided a P45 from your previous employer or the tax office have sent your payroll a P6 letting them know exactly how things stand, you will go onto a cumulative tax code (ie one without W1/M1 at the end). This means they look at the whole of the past year, so if, for example, we were 10 weeks into the tax year they would make sure you had paid the right amount of tax based on a tax free allowance of £1000 (ie 10 weeks x £100 weekly allowance). If you have a regular income level this won't make a huge amount of difference to you, but as an example, in the case of temp workers who may do nothing one week and loads the next, this evens things out (as they will have two weeks of tax allowance the second week due to not using any the week before). This can also lead to tax rebates if you start a job part way through the year having been doing nothing beforehand as you will have had all those weeks/months of tax allowance unused which will then be refunded.

Basically, the PAYE system is now all set up to mean that people get to the end of the year having paid the right amount of tax, assuming things don't get left to the last minute, in which case there isn't time for your payroll department to correct any problems in your regular pay (in this case you have to apply to the tax office for a refund).

The student form (a P38(S)) just means they don't spread the tax allowance over the year, as students tend to have patches when they do lots of work, and then patches when they do none (it should only be filled in if they are only going to work in the holidays) - due to this, spreading the tax allowance doesn't make sense. By completing this form it tells the payroll to take no tax until the threshold is reached, and from then all income will be taxed. As most students will not earn over the threshold in their holidays, this tends to lead to the idea that students don't pay tax, which isnt actually the case - a student will a well paying job will pay tax just like the rest of us. Basically it just saves the tax office doing refund for thousands of students every year.

I've tried to keep this fairly clear but feel free to ask for clarification!

seven-day-weekend

Well done Ebany, a clear constructive post that actually helps Phil instead of bull$h1tting him.:T

I actually thought it was a fair enough question to ask and would have answered him myself had I known the answer.

studentphil

Ebany wrote: »

By the sound of things, you are actually paying the correct tax, your tax code is right, and any week/month (?) you earn over the tax free amount you should be payting tax on. A P46 is a standard form for anyone without a P45 - not a student form. It may just be that you haven't been earning enough to pay any tax yet.

As for how it works, as you know you get a tax allowance each year. For most people, this then gets divided down so you receive it evenly across the year, rather than having a few months paying no tax at all, and then being taxed like crazy the rest of the year. If you are paid monthly then your monthly tax free portion is ~£435, or for weekly it is ~£100. Anything you earn over this is taxed normally (remember there is a 10% band to apply first, which runs the same way - spread over the year).

When you start with a new employer, you generally start on a Week 1 or Month 1 basis, as they don't know what tax you have paid so far that tax year. This means each month is treated completely individually, you only have that months tax free and low tax allowances, and you pay accordingly. In theory, this means you will always have paid at least enough tax - as they presume you haven't underpaid at any previous job. You may overpay though if you have some tax allowance unsused from previous weeks/months.

Once things have been sorted out and either you have provided a P45 from your previous employer or the tax office have sent your payroll a P6 letting them know exactly how things stand, you will go onto a cumulative tax code (ie one without W1/M1 at the end). This means they look at the whole of the past year, so if, for example, we were 10 weeks into the tax year they would make sure you had paid the right amount of tax based on a tax free allowance of £1000 (ie 10 weeks x £100 weekly allowance). If you have a regular income level this won't make a huge amount of difference to you, but as an example, in the case of temp workers who may do nothing one week and loads the next, this evens things out (as they will have two weeks of tax allowance the second week due to not using any the week before). This can also lead to tax rebates if you start a job part way through the year having been doing nothing beforehand as you will have had all those weeks/months of tax allowance unused which will then be refunded.

Basically, the PAYE system is now all set up to mean that people get to the end of the year having paid the right amount of tax, assuming things don't get left to the last minute, in which case there isn't time for your payroll department to correct any problems in your regular pay (in this case you have to apply to the tax office for a refund).

The student form (a P38(S)) just means they don't spread the tax allowance over the year, as students tend to have patches when they do lots of work, and then patches when they do none (it should only be filled in if they are only going to work in the holidays) - due to this, spreading the tax allowance doesn't make sense. By completing this form it tells the payroll to take no tax until the threshold is reached, and from then all income will be taxed. As most students will not earn over the threshold in their holidays, this tends to lead to the idea that students don't pay tax, which isnt actually the case - a student will a well paying job will pay tax just like the rest of us. Basically it just saves the tax office doing refund for thousands of students every year.

I've tried to keep this fairly clear but feel free to ask for clarification!

Thanks, I understand it now.

I really can't get much from payroll until they are fully open again. I think I am not getting taxed at the moment because I won't exceed my tax allowance on basic salary. However, I know that as I am down for a lot of weekend overtime that I will go over my allowance. I just need to check with them how they will tax me once I exceed it. I guess I will be taxed on a 1 month basis.

jem16

viktory wrote: »

Clearly, he shouldn't pay any tax until he exceeds his allowance.

Tax doesn't work like that. If your son earns over £100 per week or £435 per month he will pay tax as it's worked out on an annual basis - basically you get a part of your tax-free allowances each week/month

So question is...will he continue to pay emergency tax until April and when is he likely to get a rebate?

Thanks

What tax code is he on? If he filled out a P46 when he started he should have been issued a correct code by now.