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Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I resigned on 13th September 2013. Have just received payslip

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I resigned on 13th September 2013. Have just received payslip and P45 and I think tax and Employers NIC deductions are higher than expected.

My Tax Code is 944L. I am seeking further employment.

My question is are deductions correct and if not, should I revert to employer to correct or do I take up with HMRC ?

* In this month, salary, bonus, holiday pay and pay in lieu of notice totalled £11,825. Income Tax deducted was £3,851 and NIC was £1,543.

* P45 shows total pay to date £28,950 and total Income Tax deducted £6,489.

Can you confirm that the figures of £11,825 and £3,851 are included in the figures of £28,950 and £6,489 please.
Customer: replied 3 years ago.



The £11,825 of income paid this month is included in the total income to date of £28,950 and total tax to date on this figure is £6,489 including tax paid this month of £3,851.




The figure are about right. I'll explain why.

PAYE Tax deductions work on a cumulative basis. As we are only about half way through the tax year, you are at this stage of the tax year only entitled to half your personal allowance and half the sums taxable at the 20% and 40% tax rates.

After six months of the tax year, you have gross income of £28,950 of which the first £4,720 (£9,440 / 2) is tax free. That leaves £24,320 taxable. A maximum of £16,005 (20% band £32,010 / 2) of your taxable pay is taxed at 20% and the balance of £8,315 at 40%.

As your final months pay was unusually high, your taxable net of allowances pay to date has exceeded the amount that can be taxed at 20% at this stage of the tax year. When you start a new job and hand the new employer your P45, as each month passes the situation will gradually correct itself and you will effectively get back any excess tax deductions through your pay each month. By the end of the tax year, your tax deductions should be completely correct.

The national insurance situation is different. NIC is calculated on each months pay in isolation so if your salary for a particular month is much higher than other months, you will pay more NIC. NIC does not work on a cumulative basis. If you put your final pay figure of £11,825 in the NIC calculator here, it will tell you that your employer's NIC deduction is £1,543.

I hope this helps but let me know if you have any further questions.

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