Tax and Overtime

Assuming for now the overtime is to all be claimed within the same PAYE year, the overall amount of PAYE tax paid will be the same whether you receive the overtime payment in one hot, or spread out over several pay cycles. It'll all come out in the wash, so to speak.

There could be benefiots to what you decsribe if the overtime payments would take you into a 40% margin, but you were in a position to hold some over for another PAYE year, where the reminaing overtime would not take you into the 40% bracket in THAT year.

Other than that the only benefit may be in NICs - but generally speaking I think I'nm right in saying that unless you are a very low income [1] you're better off paying NIC on one large sum than several smaller ones - someone will no doubt be able to give a more definitive answer to this srea

ian

That's true enough, but the OP was keen on avoiding a temporary overpayment, especially if it required hassle and waiting to put right.

I missed that. NIC is chargeable at only 1% instead of 11% on earnings above £595 a week, and even if the employer is allowed to account for NIC on a monthly basis instead of weekly, and assuming the OP's basic salary of £2500pm, this means only the first £78 OT each month would be subject to 11%, the rest at 1%.

Therefore, the NI element of the tax bill would be nearly £8 higher by spreading the overtime over 2 months than by taking it in one go, and a further £8 higher if spreading it over 3 months.

Forget tax, it works on an annual basis so it'll be exactly the same whether you claim the overtime in one month or spread the claim over the next 3. It will all be automatic unless you're on a funny week 1 tax code (check your tax code hasn't got a W in it).

NI, however works on a monthly basis. You pay nothing on the first £385 per month, then 11%/9.4% [1] up to £2579, then 1%. So if you normal pay is below £2579 then you better off claiming it all in one go, as you'll pay less NI at

-- Andy

Not so, PAYE does not operate like that. Extreme example to illustrate - basic = £1000 pm + one off bonus of £5000 paid in Month 1. PAYE tables will assume you earn £72,000 pa., and hit you with 40% tax, even though you are basic rate payer. The overdeduction will be "repaid" over the balance of the tax year.

Yes, NI could be a factor here.

-- Doug Ramage

In message of Fri, 11 Jul 2003, Doug Ramage writes

But isn't that what he (Andy Pandy) said but in a different way round. Over the tax year you pay the same tax no matter when the overtime is paid unless you're on a W1/M1 basis.

DF

Yes, but what I said was still true, it makes no difference whether any bonus/overtime is paid in one month or spread over 3 (assuming the same tax year), at the end of the third month the total tax deducted will be exactly the same, because the year-to-date pay will be the same, therefore the year-to-date tax will be the same. Unless you're on a funny week1 type tax code.

-- Andy

Don't be daft. If you want a holiday, take a holiday. But think twice before passing on the OT. Higher rate tax will make each OT hour only about a quarter less valuable than before. If that's enough to make it not worth slaving away, then so be it.