do u get taxed more on holiday pay??

[WhiteBears]

ok i know you probably tell me to phone the tax office but i will.. just wanted to understand how my tax are calculated...right now :P

ok last week i only worked 15 hours and claimed the remaining 21 hours of holday pay so it adds up to 36hours, i got Taxed £31.40, NI £18.80

ok i thought that looked a bit high, so i checked my previous week where i worked 36 hours (didnt claim holidays)
and i got taxed £20.40 NI £12.77

so why is there a big difference? looks like i got taxed more for using my holiday hours?

btw im on a hourly rate and gets paid weekly, we get upto 5.6wwks or 28days of holiday pay

[Buenchico]

Here's how the tax system works:

Unless you're over 65 years old (or otherwise a 'special case'), you're allowed to earn £6475 during the current tax year (which started on 6th April) without paying any tax at all. Thereafter (unless you're lucky enough to fall into a higher tax bracket) the tax man takes 20% of your earnings as tax.

It would obviously be daft to let you earn £6475 in the first part of the tax year, without paying any tax at all, and then clobber you for 20% of everything you earn for the rest of the year. So the annual allowance is divided by 52, giving you £124.52 per week of tax-free pay.

Your pay statement for last week should show the 'tax week' used for calculating your pay. It's likely to have been '25' because at the end of that week we were 25 full weeks into the tax year (but some wages systems might vary by a week or so). If so, the system will have looked at how much pay you've earned so far in this tax year. Then it will have deducted 25 x £124.52 (which is the amount you don't pay tax on) to leave the amount of pay which should have been be taxed at 20%. Now that the amount of tax you should have paid up until the end of Week 25 can be calculated, the system looks back at the total amount of tax you'd paid at the end of Week 24. The difference between the two figures is how much tax you now need to pay to get up to date.

So the tax you pay in a particular week isn't actually based upon how much you've earned in that week. It's calculated as the amount needed to 'bring your account up to date'. (If your pay varies from one week to another, that can result in you paying different amounts of tax for weeks with the same earnings). One advantage of the system is that it's self-correcting. If you were accidentally charged too much tax last week, you'll automatically get it corrected this week.

Chris

[WhiteBears]

wow Chris how complex was that? do you work in a tax office? thanks for clarifying this, i will check mynx wks pay and see if theres any difference.

but what i dont get is when i claim for my holiday pay my tax shoots right up! also theres always a 20p difference when i do exactly the same hours. this is the same with one of my colleague, how ever my other colleage gets the Exact pay every week .....

[Buenchico]

The odd 20p difference now and then is probably just due to 'rounding errors' in the system. For example, I stated that you're allowed £124.52 per week of tax-free pay. It's possible that some pay systems might actually allocate £124 of tax free pay to one week, and £125 to the next week, on an alternating basis (with either the first or last week of the year being used to 'tidy up the last few pennies'). If so (during periods when you're working exactly the same number of hours each week), your tax will vary by 20p each week.

Employees who have a regular working week (with the same pay each week) should normally expect to pay the same amount of tax each week (irrespective of whether they're at work or on holiday). But you seem to be working on the system of 'stored holiday pay' which is often used where employees work irregular hours. As you've found, that can result in you paying more tax in those weeks when you've claimed you're holiday pay. (It's not unfair. At the end of the year you'll still have paid exactly the same amount of tax as a 'regular' employee with the same total earnings').

To enable me to explain, let's consider the very first week of the tax year. I'll assume that you worked for 36 hours at £6 per hour. That means that you've earned £216, of which £124.52 is tax-free. So you'll be taxed (at 20%) on the remaining £91.48, resulting in £18.30 being deducted from your pay. However, in order to comply with the legislation on holiday pay, explained here
http://www.direct.gov...dholidays/DG_10034642
your employer will add 12.07% of your gross earnings to your banked holiday pay. That means that £26.07 will be 'banked' for you. But that money is ALL in excess of your tax-free a

[WhiteBears]

many thanks for that chris :)

[factor-fiction]

Buenchico will be right.
Another way of looking at it is that the fact that it's holiday pay makes no difference. It is just pay as far as the employer and HMRC are concerned. Presumably you are paid a normal day's wage for each day you are off.

[factor-fiction]

Sorry, I hadn't seen Buenchico's second response which explained the unusual way of calculating holiday pay by some employers.
Does this mean that although you paid more tax and NI your net pay (after tax) was also higher in teh week you got holiday pay?