Income tax and commission

So I get a quarterly commission (this is the first time in my career) which means for that month I am paid, my income tax and student loan are hugely affected. I got paid commission in April.

I have just logged on to HMRC and it shows my projected income to be HUGELY inflated because of this. I am not going to make anywhere near this figure.

In the past, if you overpaid tax, I think they recalculated it at the end of the tax year. I believe HMRC systems have advanced and now they will recalculate the following month, paying you back some of the overpaid tax.

Is this correct? There is a service online at HMRC which allows you to enter your projected salary for the whole year including bonuses, but not sure if I should use this. What if I over/under estimate?

Can anyone advise?:beer:

Comments

  • jobbingmusician
    jobbingmusician Posts: 20,343
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    Most PAYE systems will sort out the tax as you go along, so yes, you should get quite a bit back next month and it should be balanced by the end of the year. No idea about student loan, I'm afraid.

    I'm no idea what sort of a response you are likely to get on this board - people are constantly surprising me with their wealth of knowledge! If you don't get any more replies, would you like me to move this query to the tax board?
    I was a board guide here for many years, but have now resigned. Amicably, but I think it reflects very poorly on MSE that I have not even received an acknowledgement of my resignation! Poor show, MSE.

    This signature was changed on 6.4.22. This is an experiment to see if anyone from MSE picks up on this comment.
  • You are getting HMRC and your employer mixed up. HMRC don't deduct any tax (unless you work for them I suppose :p).

    Your tax deductions are based on what you are actually paid and the tax code your employer is using. Your tax could be affected by higher than expected earnings but impossible to say if this has actually affected you without knowing what your tax code is.

    Providing you are on a cumulative tax code then your employer should automatically recalculate the tax due each time they pay you.

    So for example if they deducted some 40% tax in April (month 1 of the tax year) because your annuallised taxable pay at that point was say £80,000 (because of the bonus) but the annuallised amount reduced each month as you were only paid your basic taxable salary then your tax would be adjusted accordingly.

    You can use this calculator to check your expected tax. For May you would put in April's details along with whatever you think the May taxable amount is going to be.

    http://payecalculator.hmrc.gov.uk/PAYE0.aspx
  • arthurfowler
    arthurfowler Posts: 212
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    My code is 1185L.

    Yes please jobbingmusician, didn't see that board.
  • chrisbur
    chrisbur Posts: 4,032
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    My code is 1185L.
    .

    Regarding tax a lot of people think they are paying higher rate tax when they get a bonus or commission when in fact they are not. It seems a lot higher than they expect as tax is calculated by giving you an allowance on which no tax is paid so once that allowance has been used all of the extra pay has tax deducted from it. Without knowing the taxable gross figure as well as the tax code you cannot tell if higher rate tax has been paid.

    Regarding student loan this is calculated on your monthly earnings but with an annual maximum based on your annual earnings. If you are paying back student loan every month then the monthly figures will add up to the annual figures and you will not have overpaid. A refund would only be due if you had any months in which no student loan was due.
  • DJMitchell
    DJMitchell Posts: 7 Forumite
    chrisbur wrote: »
    Regarding student loan this is calculated on your monthly earnings but with an annual maximum based on your annual earnings. If you are paying back student loan every month then the monthly figures will add up to the annual figures and you will not have overpaid.

    I don't think that is the case,

    Student loans are based on what you earn at that point in time. There is a starting threshold so you only pay on any earnings over that amount. The threshold is worked out depending on your pay frequency. I believe the threshold is £25k per year so that works out at £2083.33 per month, everything over that is calculated at 9%.

    Unlike tax however its not cummulative so if in the next month you earn £2000 then nothing will be payable, earn £2100 however then student loans will be calculated on the £16
  • chrisbur
    chrisbur Posts: 4,032
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    DJMitchell wrote: »
    I don't think that is the case,

    Student loans are based on what you earn at that point in time. There is a starting threshold so you only pay on any earnings over that amount. The threshold is worked out depending on your pay frequency. I believe the threshold is £25k per year so that works out at £2083.33 per month, everything over that is calculated at 9%.

    Unlike tax however its not cummulative so if in the next month you earn £2000 then nothing will be payable, earn £2100 however then student loans will be calculated on the £16

    Probably badly explained by me, a better explanation of when student loan may be overpaid when you get fluctuating earnings is available on this site at ....

    https://www.moneysavingexpert.com/students/student-loan-overpayment-refund
    It is covered in the section "How to reclaim if your annual income is under the threshold"

    My point was that the OP said "my income tax and student loan are hugely affected" which I took to mean that they were more than they normally paid, and if this was the case there would be no over-payment due back.

    In fact the OP has not given any details of earnings so it is impossible to be certain of either their tax or student loan position.
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