Spreading out overtime claims to "minimize tax"

jaybee

jaybee

jaybee

Soldato
Joined
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Is this not a myth?


Scenario 1

You put in an overtime claim for say £1000 in a single month added on to your normal monthly pay. It can make it look like if you were to keep earning at that rate that you would enter into the higher tax bracket for your annual salary and therefore get taxed more. For that month, say £300 worth of the £1000 gets taxed at 40% because it was over the threshold. £700 of it still gets taxed at 20% basic tax rate.


Scenario 2

You put in a claim for £500 in January, then you wait to claim the other £500 worth in February keeping both months at the lower bracket.



Surely neither scenario matters? In the end your tax code adjusts to compensate and/or you would get a tax rebate if necessary? Does scenario 2 only bring the benefit short term of it being in your pocket quicker?

Would you agree that it simply never harms you to earn more when it comes to taxation? i.e. There is no way to "play" the system and you will always pay the right amount of tax (or should do). *
 
Your tax bands relate to your annual income ergo for month to month changes it doesn't matter in the grand scheme of things
 
Correct. It all works itself out properly in the end.

There "may" be some short term benefit in splitting it, if you can, but I doubt it will be enough to worry about it.
 
Thanks guys, just wanted a sanity check with this one. :)

I've never heard of anyone having to contact HMRC about over tax and rebates owed. They always work it out in the end and rebate or reclaim where required automatically.
 
Isn't it actually beneficial to try and concentrate your income so that a larger proportion is in the 2% NI bracket?
 
It does all work out in the end however example 2 would mean you get all your money quicker.
The software basically doesn't know its a one off and taxes you like its going to be the norm from now on, only over time does it work out that its not and slowly you get back the "over taxed" money.
I believe the same is true of NI.
 
jaybee said:
Thanks guys, just wanted a sanity check with this one. :)

I've never heard of anyone having to contact HMRC about over tax and rebates owed. They always work it out in the end and rebate or reclaim where required automatically.
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I had to contact the HMRC a few months back after receiving a letter stating that I still had a company car despite me telling them that I'd left the company 6 months previous.

to be fair to was a very simple process, 1 call and I ended up with a £715 rebate and a new tax code.
 
this year with voertime will be the first time i will be poking into the 40% bracket on a monthly basis but not over all for the whole year, what actually happens?

do they know or do i have to inform them? do i get the money back automatically?
 
Tefal said:
this year with voertime will be the first time i will be poking into the 40% bracket on a monthly basis but not over all for the whole year, what actually happens?

do they know or do i have to inform them? do i get the money back automatically?
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If you only have one job and its all on a payslip then nothing needs to be done, by the end of the payroll year it will all be as it should.
 
peige said:
If you only have one job and its all on a payslip then nothing needs to be done, by the end of the payroll year it will all be as it should.
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yeall all one job do the tax people send it i na cheque or does it get added to payslip etc?
 
You only really get cheques from the tax office if your code is wrong at the end of the year if you only earning from one source. Thats why its important to get your code right and question why it changes if it does, they are incredibly understaffed and do make mistakes.
You will only pay top rate tax on the bit that goes over bracket.
 
muon said:
Isn't it actually beneficial to try and concentrate your income so that a larger proportion is in the 2% NI bracket?
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Yes.

You'd actually be better off taking your entire year's salary in one month. That's why directors get their NI recalculated in the final month of the year (so they don't just pay it all in one month to avoid NI)
 
jaybee said:
Thanks guys, just wanted a sanity check with this one. :)

I've never heard of anyone having to contact HMRC about over tax and rebates owed. They always work it out in the end and rebate or reclaim where required automatically.
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Both myself and my father have had to separately. I was owed about £950 off them for a over a year and they kept arguing I wasn't. My dad was owed about £30,000 after they'd had him on the wrong tax code for quite some time. Took him two years and a threat of court to get it back.
 
jaybee said:
Thanks guys, just wanted a sanity check with this one. :)

I've never heard of anyone having to contact HMRC about over tax and rebates owed. They always work it out in the end and rebate or reclaim where required automatically.
Click to expand...

Sometimes they will work it out, but often they'll work it out incorrectly for whatever reason.

The big issue comes when you're on the wrong code, so for example they reduce your allowance to account for a taxable benefit that you no longer receive. Or they put you on an emergency code. In those cases I've always had to have lengthy phone discussions to get it resolved.
 
If you have a month 1 tax code though, spreading your overtime out can be beneficial as otherwise you have to wait until the end of the year to get a tax refund.

If on a normal taxcode then it will correct itself next month and as said, better to put it all through one month for the least amount of total tax and NI paid.
 
That 40% tax is a tax on success and the middle class. It makes earning from 40-50k almost not worth the extra work that higher paid jobs results in. I got 8k pay rise only end up getting 300 a month extra after tax. It realy is a massive issue because I would need to jump to 55k before the additional workload starting paying off.
 
So how does one know if they have been over paying tax for say 10 years?! Is it just a case of go back and check? Erm...how? I must say perhaps I have been putting too much faith in Inland Revenue to actually do their jobs correctly. I have always just bent over and taken it whilst occasionally moaning about tax. :) You know...the most British way to deal with it.
 
peige said:
You only really get cheques from the tax office if your code is wrong at the end of the year if you only earning from one source. Thats why its important to get your code right and question why it changes if it does, they are incredibly understaffed and do make mistakes.
You will only pay top rate tax on the bit that goes over bracket.
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how does it equal out over the year then?
 
anything I don't mind said:
That 40% tax is a tax on success and the middle class. It makes earning from 40-50k almost not worth the extra work that higher paid jobs results in. I got 8k pay rise only end up getting 300 a month extra after tax. It realy is a massive issue because I would need to jump to 55k before the additional workload starting paying off.
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It's these kind of comments that I do not understand. Show me the maths where you are not better off earning more? Yes you get taxed more, but how is it "not worth the extra work". It should never be the case that we should all earn exactly £1 under the higher tax threshold otherwise nobody would ever push to succeed in careers and go on to earn more. You only get taxed on the amount over the threshold, not your whole wage.
 
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