Does this tax/NI deduction seem right?

My wife has a tax code of 657L. She's already been paid in February but, for reasons best known to themselves, her employers have chosen to pay her annual bonus as a separate payment, complete with separate wageslip etc etc.

The bonus was £239.93 and there are deductions of £48 (PAYE) and £26.39 (NI).

She's a basic rate tax payer and thinks (well, the entire staff thinks!) that the deductions are way too high.

Any thoughts anyone?

Thanks in advance.

Reply to
Justin Credible
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They're spot on. As it's an extra payment none of the allowance will be used against it (the pay period will be the same as that of the Feb pay).

Tax 240*0.2 = 48.00 [PAYE works on whole pounds to date] NI 239.93*0.11 = 26.39

Reply to
Andy Pandy

Many thanks for the answer.

So.....has she paid too much tax and will have to claim it back in April? Or would she have been better off if the payment had been lumped in with her February salary?

Reply to
Justin Credible

This might be correct for the tax, but it can't be right for the NI.

What if the normal salary for the month was above the UEL, or the total of normal salary plus bonus is below the LEL? Surely this has to be taken into account?

tim

Reply to
tim....

Well - it could be wrong. But I very much doubt it. Which is not the same as saying "it can't be right"...!

The tax rate could be pushed into 40% by the bonus, for example. The wife could be over 59 and hence no EE's NI payable. Or contracted out....

BTW, you wrote LEL, but I hope you meant ET.

Payroll s/ware is pretty good these days... I reckon you can relax :-)

Reply to
Martin

No danger of creeping into the 40% tax bracket and the wife is in her forties.......

Reply to
Justin Credible

She hasn't paid too much tax, and even if she had, unless she is on a week 1/month 1 code (usually the result of completing P46) it will automatically correct itself at the next pay day. If she had overpaid tax, the only cost would be the cost of money, but that is rather low these days.

Reply to
David Woolley

No. The deductions are correct.

Makes no difference.

Reply to
Andy Pandy

He said she was a basic rate taxpayer, which means her earnings are above the PT (& LEL) and below the UEL (the UEL is now aligned with the 40% tax band).

OK in some circumstances they aren't exactly aligned (eg benefits/pension contributions can make the levels different), but he's also now said no danger of being near the 40% tax band.

Reply to
Andy Pandy

Or even PT.

Reply to
Andy Pandy

Why do the entire staff think the deductions are way too high?

As people of mentioned they appear to be correct.

I'd be curious to know the basis of the concerns.

Reply to
Peter Saxton

Because the majority of people hear about the top rate of tax being 40% and think "I must be paying a lot less than that"

Something like this makes it completely obvious that their marginal rate of tax is 31%, not the 20% that they thought.

The rich have pulled off a fantastic con job - someone making a couple of hundred thousand a year of dividends is paying 25% on dividends received. Yes there's the dividend tax credit but then there's employers NI.

Tim.

Reply to
Tim Woodall

It should be obvious. It'll be because the deductions represent a much bigger fraction of the gross amount than do the usual deductions from monthly pay.

The reason this surprises them is that they don't appreciate that the usual deductions are at a lower fraction because they incorporate a fixed proportion of the allowances, calculated on the assumption that the allowances are split equally over the 12 (presumed equal) monthly payments (more precisely that the fraction which pay to date represents of expected total annual pay is the same fraction as that which the number of pay periods to date represent of the whole tax year).

Therefore, the only sensible ways to deal with unscheduled extra payments is either to add them to the expected annual total and re-calculate the fractions, which as a result will be different in every subsequent month, or to keep them entirely separate and not apply any part of the allowances to them. The latter option is the one they chose.

Oh My God! The use of "of" in place of "have" is usually an indicator of membership of a section of the population I would not have thought you to be part of. They don't even sound the same, as every meerkat knows. :-)

Reply to
Ronald Raygun

In message , Tim Woodall writes

Not a lot of people know that, and I've given up trying to convince them. :-(

Well we know what to look forward to if we "Vote for change",- it will get worse.

Reply to
Gordon H
< snip >

But is squeezing seven "of"s into one sentence really excuse enough for the one at the end of the sentence? :-)))

Reply to
Martin

In message , Martin writes

And isn't that a preposition I see at the end of his sentence?

Reply to
Gordon H

OK, my bad, as it is fashionable to say, though I thouroughly disapprove of using "bad" as a noun in that particular way.

Clearly not the sort of writing up with which you like to put.

Nevertheless I don't subscribe to the notion that ending a sentence with a preposition is something one really needs an excuse for.

Nor in any case does ending the sentence with it contribute to the count. If you want it away from the end, you have to move it into the middle, since you can't just omit it because that would break the sentence's grammatical correctness. Moving it, of course, leaves the count the same. I could had phrased it ".. of membership of a section of the population of which I would not have thought you to be part.", but I put it to you that this would be more difficult to parse, specifically it's not immediately clear that "which" refers to "section". Without a "which", that's one little thing the reader needs not worry about.

And (beginning another paragraph with a conjunction with impunity) it's not seven but really only six, because the quoted one doesn't really count. There are really only three "and"s in the chip shop owner's complaint to the sign writer that his gaps between "fish" and "and" and "and" and "chips" aren't the same width. There we are, now there are too many reallies.

Reply to
Ronald Raygun

What a nonsense! "Expected annual total" - and then they have pay rises at different times which mess that up. I think the system we have got is fine. If people don't know how tax and NI is calculated it is easy to find out.

It's a typo. I don't think it means too much. I have been away for a week and rushing even more than usual.

Reply to
Peter Saxton

"Expected annual total" is not nonsense. It is what the system we have (which I agree is fine) actually uses, though it doesn't feature in the calculation explicitly. Correct me if I'm wrong, but the cumulative basis essentially works something like this:

Assume we're considering the 5th monthly payment of the current tax year. What we actually look at is the total gross pay for all 5 months put together. This is called pay to date, and let's call it X.

Now 5/12 of the annual allowance (as specified through the employee's tax code) is deducted from X, and we'll call what's left Y. This is the taxable pay to date.

To calculate the tax payable to date (which we'll call T), we do this: Suppose the basic rate tax band width is B. If Y is less than 5/12 of B, then T will be equal to Y multiplied by the basic rate, otherwise let's abbreviate "5/12 of B" and call this Z. The T will equal Z times basic rate plus Y-Z times higher rate.

The tax deducted from the current month's pay will be T minus whatever has already been deducted from the pay of the previous 4 months.

Basically this method is equivalent to extrapolating pay to date (that's X from above), by muliplying it by 12/5, to get the expected annual pay, and then calculating the whole year's tax deduction, and multiplying this back down by 5/12 to get the tax deductible to date.

A typo is when the finger hits the wrong key. Substituting "of" for "have" isn't a typo, it's more of a thinko. But relax, I was just joking.

Reply to
Ronald Raygun

"... needs not worry..." Surely not....? I think I have a modal verb coming on - I'll go and lie down for a bit... :-))

Reply to
Martin

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