How is tax calculated?

DarkShadow

DarkShadow

DarkShadow

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I've just recieved my wage slip and I'm confused.

I've cut my contract hours to 8 a week as I'm focusing on Uni and off on my placement in 2 months.

Now I checked my previous wage slips and one month I earnt £550 and I was taxed £14. This month I've only received over £200 and I've been taxed £16. How does that work? :confused:
 
dark_shadow said:
I've just recieved my wage slip and I'm confused.

I've cut my contract hours to 8 a week as I'm focusing on Uni and off on my placement in 2 months.

Now I checked my previous wage slips and one month I earnt £550 and I was taxed £14. This month I've only received over £200 and I've been taxed £16. How does that work? :confused:
Click to expand...

You're probably reached your tax free allowance, so now you're paying 'proper' tax levels.
 
Tax is calculated according to your tax code.

Assuming you are on the standard tax code, which for this year (which ends on 5 April 2008) is 522L (note, no X, Wk1, Mth1 etc after the L) then like this.

You are given the personal allowance of £5225 for this year. This is the 'tax free' amount, and if your earnings for the whole year are below this, you will not pay tax.

If you earn over £5225, the next £2230 is taxed at 10% (so everything from £5226 to £7455). If you earn more than that, the next £32370 is taxed at 22%. Everything over that is then taxed at 40%.

The tax system works over the whole year. So at a pay date the person paying you looks at your total earnings so far in the tax year. Then they use the tax tables from HMRC to see how much tax you should have paid on that total amount, at that particular point in the year. If the amount of tax you have already paid is less, they will deduct tax from you. If you have paid more tax than is due on that amount at that point in the year, they will refund you tax along with your pay.

Without knowing what code you are on, your cumulative pay for the year and your cumulative tax so far this year there is not really any way of knowing if what you have paid is correct or not.
 
Thanks for the prompt responses

The tax code is 522L and I'm convinced I haven't earned anything over the tax-free threshold.

Last month, I earned almost double and I only paid £4 odd. I was also under the assumption tax works as follows:

Pay per Annum/12 = £xx.xx Now is that amount exceeds (5225/12) £435.41 a month, then you would have to pay tax. My problem is, I've earned far less than that!

Sorry guys, I just need some clarification!
 
Tax works like I said it does in my post. It isn't your annual pay divided by 12 each month, it is cumulative, based on how much you have earnt to that point in the tax year, and based on your code.

Go check your payslip again and check if there is anything after the L in the code like X, Wk1, Mth1 etc. Also give us a rough indication of your total pay to date, and tax to date.

Either you are on a non-cumulative code, or have earnt more than the personal allowance.

Have you changed jobs this tax year?
 
It's definitely just 522L. I've been working at the same place for the past 18 months. In the past 6 months, I'm 100% certain I've not earned anywhere near the threshold, less than half of the threshold.

I am moving away on for my placement but that's irrelevant at the moment.
 
The past 18 months don't really matter. The period that matters is 6 April 2007 to 5 April 2008.

If your code is 522L, then you will have paid the correct amount assuming you have been employed by the same employer for the whole period without any breaks in the employment, or any other jobs along the way (of jobseekers allownace etc).

Has your pay been constant all year, or do you earn mor in some months, less in others etc?

If your total pay to date on your last payslip is indeed less than £5225 then you shouldn't have paid any tax. If it is more, then you should.

Check to see that it isn't a negative amount of tax (i.e they pay you tax back and add it on to your pay, rather than deducting tax.

Also check the total tax to date figure - this is the most important figure at the moment, along with total pay to date without knowing these there is no way of knowing if you have paid the correct amount of tax.

If you don't want to post these figures, send me an email (address in trust) and I'll reply.
 
Ah that makes a lot more sense! I was under the assumption it was 12 months from my employment date.

Thank you very much for your informative replies :)
 
LordSplodge said:
Q: How is Tax calculated?
A: Badly
Click to expand...

quoted for truth

I have never understood tax and never will. NI i can understand.

if you are owed tax it takes a life time to get back, if they need more tax off you they go in a big strop and need it now now now
 
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