income tax basic and higher rate allowances

[tigga]

Hi, further to an earlier post on tax, can anyone tell me if the tax band can change month to month i.e :

I get paid monthly and put in plenty of overtime, do they split the �33,000 over 12 (being �2750) and tax me 40% on any earnings over �2750 in any particular month ?

Also are there similar bands for national insurance ?

Thanks in advance

[kags]

Yes, the tax bands are spilt evenly over the months, so you would pay 40% on all taxable income over �2750 in a month (by taxable I mean income less your personal allowance for the month). As long as you are on a normal tax code (ie it does not say W1 or M1after the numbers), the tax system works cumulatively, so if over the whole of the tax year your earnings were not sufficient to pay 40%, you would gradually get the tax back that you paid at 40%.

Unless you are a company director, National Insurance is calculated on a month by month basis on income falling between the following bands:-
�0 - �420 = nil
�421 - �2795 - 11%
�2796 and above - 1%.
Each month is calculated independently.

[tigga]

Thank you kags, its all clear now !

[kags]

Actually, I was having a bit of a senior moment and I forgot one vital piece of information. Because the tax system is cumulative (other than when you have a WI at the end of your code), if you don't earn �2750 in month one, then the unused balance of the basic rate band is carried forward to month 2, and so on. Therefore, by month 7 of the tax year, you could have earned in total �19250 before the 40% band kicks in. Then, as mentioned above, if you have a one off month with high earnings, you will gradually be allocated the remainder of the basic rate band throughout the year.