Tax Question

[soapnumpty]

Hi all. I am in full time employment and usually receive a bonus in March. This year the company I work for were late paying it, and I didn't receive my bonus until April's pay. I seem to have been taxed a lot more than I should have been. About another £2-300. My colleagues are all in the same position. The only theory we can come up with is that as April is the first month of the new tax year, HMRC assume we are going to be earning this higher salary every month, and have therefore put us on some kind of emergency tax, or have taxed us more. Does this sound plausible? if so, will it correct itself at some point when they see that we aren't earning that amount every month, and will we get the extra tax back?
Thanks

[ubasses]

They won't have put you on emergency tax but you will have been taxed as if you are earning that amount every month. You will find that over the next few pay days you start clawing back the extra until it balances out.

[Buenchico]

>>>as April is the first month of the new tax year, HMRC assume we are going to be earning this higher salary every month

Effectively correct.

Your personal tax allowance is £10600 per year, which equates to about £883 per month. Let's say, for example, that you'd normally get paid £2000 per month. You'd then be taxed (at 20%) on £1117 (= £2000 - £883), meaning that you'd pay about £223 in tax (which is around 11% of your gross pay).

However if you received a healthy £1000 bonus this month, you'd be taxed on £2117, meaning that you'd pay about £423 in tax (which is around 14% of your gross pay).

i.e. every pound of your bonus is taxed at 20% (because you've already used up your tax-free allowance), unlike every pound of your regular pay (which gets that tax-free allowance).

At the end of next month the PAYE system looks at how much you've earned so far in the tax year, deducts 2 x £883 (as your tax-free allowance) and then calculates 20% of what's left. That's the TOTAL tax you'll owe at that point, so the amount you paid this month is then deducted in order to work out what you should pay next month.

The same thing happens the following month (with 3 x £883 being used as your tax-free allowance so far in the year), and so on. By doing it that way your tax will AUTOMATICALLY adjust itself so that, at the end of the tax year, you'll have paid tax at 20% (or higher, if appropriate) on everything above £10600 but no more.

[New Judge]

Have a look at your payslip and see what tax code has been used.

[fiction-factory]

Yes, as Ubasses says it will sort itself out but may take a few months

[fiction-factory]

If you'd received the bonus in March you'd have paid tax at your marginal rate of 20% or 40% on all of it, so I don't think you've paid any more tax this way

[soapnumpty]

Thanks all for your quick replies. That explains it. My tax code is 1060L New Judge so just the regular tax code.