Maternity pay lump sum at end of tax year

edited 30 November -1 at 1:00AM in Cutting Tax
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06785790678579 Forumite
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edited 30 November -1 at 1:00AM in Cutting Tax
Hi all - was wondering if someone could help?
I am pregnant and about to finish a fixed term contract, after which I will be paid a lump sum at the end of March. This will include my SMP, company maternity pay (equivalent to 2 months full salary, 2 months half) and half my salary for that month.

Does anyone know where I stand with reclaiming the huge amount of tax that I will end up paying on this money? I currently earn ~£32k/year so will be near the cumulative threshold for the higher rate tax by the end of the tax year, and the extra will undoubtedly push me over. It seems unfair to have to pay tax on money which is meant to support me and my baby for the following 9 months (up until January 2015)....but I can't see anything about this on the hmrc website?

Anyone have any experience with this?

Replies

  • edited 28 November 2013 at 2:30PM
    dano17439dano17439 Forumite
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    edited 28 November 2013 at 2:30PM
    Not sure theres any way round it. Of course if/when you return to work in Jan 15 you will probably pay no tax in that tax year if your gross earnings for the period to March 2015 is under 10k

    Don't forget though you only actually pay 10% more when you move into the higher bracket as although tax increases from 20% to 40%, your NI contributions reduces from 12% to 2%
  • CLAPTONCLAPTON Forumite
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    0678579 wrote: »
    Hi all - was wondering if someone could help?
    I am pregnant and about to finish a fixed term contract, after which I will be paid a lump sum at the end of March. This will include my SMP, company maternity pay (equivalent to 2 months full salary, 2 months half) and half my salary for that month.

    Does anyone know where I stand with reclaiming the huge amount of tax that I will end up paying on this money? I currently earn ~£32k/year so will be near the cumulative threshold for the higher rate tax by the end of the tax year, and the extra will undoubtedly push me over. It seems unfair to have to pay tax on money which is meant to support me and my baby for the following 9 months (up until January 2015)....but I can't see anything about this on the hmrc website?

    Anyone have any experience with this?



    The 40% tax threshold is 41,450 per annum so presumably your total income for 2013-14 will not be more than this?
  • ~You're right...so presumably, I'll just be charged emergency tax and can then claim it back the next month?
    Still paying out extra for student loan etc, but that's much better than I thought.

    And thanks, Dano, I hadn't thought about when I go back to work in 2015 (hopefully January), I'll be way below the personal allowance threshold, so will make a little back then.

    Thank you both.
  • edited 28 November 2013 at 3:31PM
    zygurat789zygurat789 Forumite
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    edited 28 November 2013 at 3:31PM
    As far as earnings go each tax year, 6 April to 5 April stands alone so all earnings received in that year are taxed as income of that year.
    You mention that your contract is terminating at the end of March; now if that could be extended to 6 April, all monies recived on 6 April will be taxed as income of 2014/15. Although, initially, you will have to pay PAYE on this figure you may be able to get a refund later in that year. See here http://forums.moneysavingexpert.com/showthread.php?t=4828550
    The only thing that is constant is change.
  • CLAPTONCLAPTON Forumite
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    0678579 wrote: »
    ~You're right...so presumably, I'll just be charged emergency tax and can then claim it back the next month?
    Still paying out extra for student loan etc, but that's much better than I thought.

    And thanks, Dano, I hadn't thought about when I go back to work in 2015 (hopefully January), I'll be way below the personal allowance threshold, so will make a little back then.

    Thank you both.

    if you are still on the payroll and are paid in March from that payroll then the tax will be correct as it will take into account your tax allowance for the year.
  • I will be on the payroll until the end of March. But I'm wary, because I started a previous contract in February 2011, for six weeks. I had just graduated and no other taxable earnings for the year. The job was fixed term and at the end of the tax year and yet I was still taxed 40% when I was nowhere near my personal allowance or the threshold for the higher rate. This was all despite filling in the relevant forms....
    Also, when I began this job, I received an extra payment in my first month - contract mess up meant that I wasn't paid for 6 weeks, so I got an emergency payment mid month for the first 6 weeks and then my regular salary after ~8. This payment was taxed at the higher rate too....so following that, I'm assuming a massive chunk of my mat lump sum will disappear and then I'll be able to claim it back in April.
    Sadly no hope of extending my contract to April - no money left to keep me on.
  • CLAPTONCLAPTON Forumite
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    0678579 wrote: »
    I will be on the payroll until the end of March. But I'm wary, because I started a previous contract in February 2011, for six weeks. I had just graduated and no other taxable earnings for the year. The job was fixed term and at the end of the tax year and yet I was still taxed 40% when I was nowhere near my personal allowance or the threshold for the higher rate. This was all despite filling in the relevant forms....
    Also, when I began this job, I received an extra payment in my first month - contract mess up meant that I wasn't paid for 6 weeks, so I got an emergency payment mid month for the first 6 weeks and then my regular salary after ~8. This payment was taxed at the higher rate too....so following that, I'm assuming a massive chunk of my mat lump sum will disappear and then I'll be able to claim it back in April.
    Sadly no hope of extending my contract to April - no money left to keep me on.



    if you are on the correct tax code then this will not happen


    your tax code should be 944L (with nothing like M1, Wk1, X, nocum after it)
  • 944L, yep. Fingers crossed.....
  • dano17439dano17439 Forumite
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    0678579 wrote: »
    I will be on the payroll until the end of March. But I'm wary, because I started a previous contract in February 2011, for six weeks. I had just graduated and no other taxable earnings for the year. The job was fixed term and at the end of the tax year and yet I was still taxed 40% when I was nowhere near my personal allowance or the threshold for the higher rate. This was all despite filling in the relevant forms....
    Also, when I began this job, I received an extra payment in my first month - contract mess up meant that I wasn't paid for 6 weeks, so I got an emergency payment mid month for the first 6 weeks and then my regular salary after ~8. This payment was taxed at the higher rate too....so following that, I'm assuming a massive chunk of my mat lump sum will disappear and then I'll be able to claim it back in April.
    Sadly no hope of extending my contract to April - no money left to keep me on.

    If you were taxed in 2011/12 and earned under your tax allowance for the year, but still paid tax, you are due a rebate direct from HMRC

    if you are a culmative tax code then by now the tax you have paid will be correct to the money you've earned even taking into account the error at the start of your job.

    My advice would be, look at your last payslip for earning to date this tax year. If you add your personal allowance to £32,011 this is the rate you will pay 40% tax on (so if you tax code is 944L it will be 40% on over £41,451

    Fag packet calculation it seems like your last pay in March will be over 10k gross. If this takes you over £41,451 then yes you will pay 40% on anything above that

    If you are on a non culmative tax code, you will get taxed at 40% for any earnings over £3454.16 (presuming 944L M1 tax code), but if your yearly earnings are under £41,451 you will need to apply for a rebate from the HMRC shortly after the tax year end

    At the end of the day if you earn under the threshold then you have nothing to worry about, if you go over the threshold then you will have to double check that you've not overpaid the tax if you are on a non culmative tax code
  • Thanks, that makes sense. I won't be over the threshold, not the cumulative one. 20% it is...
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