PAYE - Whats the answer

PAYE - Whats the answer

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Hi

I use Moneysoft to run payroll.  I only have one employee whom I have employed since April till end of December paying circa £70/week.  This employee has left end of Dec and does not plan to work anymore (planning a break then starting family).  My question is that on Moneysoft, the tax & NI due is around £3.8k (inc Employers NI) on a salary of circa £14.7k.  However, when I enter the salary figure on Listen to Taxman, I get a total Tax, NI and E'Ers NI of circa £2,800.  After I make payments to HMRC according to Moneysoft calcs, should both employee and myself receive tx back from HMRC? I dont know how this whole thing works!!

Replies (10)

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Stepurhan
By stepurhan
07th Jan 2014 07:54

Your figures don't work

At £70 per week, you don't come anywhere near a the £14.7k salary figure you then go on to quote, even for a full year. You need to be clear what the gross pay from April to December is before anyone can tell you the correct figures.

I have also never heard of Listen to Taxman, and therefore have no idea of how reliable it is. I am well aware of how reliable Moneysoft is, so I'd be inclined to go with their figure. One possible explanation is that Listen to Taxman is doing the calculation for a full year, whereas your employee has only worked for 9 months.

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By johngroganjga
07th Jan 2014 07:59

I suspect £2,800 is the

I suspect £2,800 is the figure that would have arisen hypothetically if £14.7k had been paid in equal instalments over the whole of the current tax year.  Your actual liability is higher than that because you squeezed it into a 9 month period.

This is just a educated guess.  I have not attempted to replicate the figures.  It is the case in any event, because that is how NI works, that more NI will arise on £14.7k paid over nine months than on the same figure paid over a longer period.  

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By Assurance
07th Jan 2014 08:28

I made a mistake. should have written £370/wk

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Stepurhan
By stepurhan
07th Jan 2014 08:32

Confirmed

Thanks for the correction, the figures make sense now.

I agree the £3,800, subject to rounding and assuming a standard tax code. I can also confirm that if you stretch the £14.7k over 12 months instead of the 9 months you actually paid the salary over, you do get a liability of £2,800 instead. The £3,800 is the correct figure.

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By Assurance
07th Jan 2014 08:37

how do you get a lower liability over 12 months and higher over 9 months? confused.

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Replying to tljenkin007:
By ShirleyM
07th Jan 2014 08:39

Tax free allowance

Assurance wrote:

how do you get a lower liability over 12 months and higher over 9 months? confused.

Your employee would receive the benefit of 12 months tax free allowance, rather than 3/4 of it (9 months).

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Stepurhan
By stepurhan
07th Jan 2014 08:43

Also lower NIC

Also NIC is only charged above the earnings threshold. If you spread the salary over 12 months, you would get 12 months of NIC-free earnings threshold as well. The savings are approximately £500 on each.

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By onicholson
07th Jan 2014 08:44

Tax refund
The employee can get the tax difference back but the NI won't change:
http://www.hmrc.gov.uk/incometax/stop-work-refund.htm

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RLI
By lionofludesch
07th Jan 2014 09:14

Employee left

If the employee's left and doesn't work before 6th April, she'll get a repayment but you won't.  You need to send in all the tax you've deducted.  The tax office will deal direct with her from now on.  You shouldn't be altering salaries you've already paid.

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Stepurhan
By stepurhan
13th Jan 2014 14:20

Simplified explanation of PAYE

National Insurance is worked out on a weekly or monthly basis. What this means is the amount of National Insurance charged will be based on the amount received each period.If your £14,700 was paid over 12 months, National Insurance would be calculated on £1,225 gross pay per month. To pay the same total of £14,700 over 9 months, you would be paying £1,633.33 per month. A higher monthly pay going in to the calculation means a higher NI bill.

Tax normally works on a cumulative basis. However, if the person is receiving the same amount monthly then the effect is the same as for National Insurance, the tax will be based on the monthly amount. Higher monthly amount means a higher tax bill.

To clarify this further, if they went on to a job at exactly the same rate for the last three months of the tax year (January to March). Their gross pay for the year would £19,600 (Your £14,700 plus 3 x £1633.33). Their full year earnings would therefore be higher and you would expect the tax and National Insurance to follow.

As others have said, if they don't work for the rest of the year, their tax bill will drop, because they will have only earned £14,700 for the full year. National Insurance will be unchanged though.

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