National Insurance allowance

[TheCyclingProgrammer]

I give up. Talk to your accountant.

My accountant would tell me that having been paid £25k in salary in this tax year that I have effectively used up my personal allowance and that any further salary would be subject to income tax.

The fact that the allowance is spread over the year if you're paid by PAYE really makes no difference at all to the bottom line at the end of the tax year. The tax liability is the same. Paying any more salary increases your tax liability.

If OP has earned £25k and been taxed on £19.5k then if they do not pay any more salary to themselves they will be due a tax rebate at the end of the tax year on some of their salary. Its not rocket science.

[WordIsBond]

I give up. Talk to your accountant.

If I asked my accountant questions like that he'd probably want to start charging me more. I get a good rate on my fee because I'm not an idiot and spare him this kind of stuff.

OP will have to file self assessment. When he does, WHATEVER HE MAY DO NOW WITH PAYE, he will have to pay income tax because he already has income in excess of his allowance.

There is a slight modicum of sense in what you are suggesting. IF he goes ahead and pays a salary, he will not have to pay tax on all of it now under PAYE. But in the end, ANYTHING he is paid in salary from here on through the rest of the year is going to eventually incur income tax. All of it. If he pays no more salary, he will be able to apply the seemingly "unused" portion of his allowance to income he has already been paid. So every pound of salary from here on is going to cost 20 pence in tax.

[pmasoft]

My accountant would tell me that having been paid £25k in salary in this tax year that I have effectively used up my personal allowance and that any further salary would be subject to income tax.

The fact that the allowance is spread over the year if you're paid by PAYE really makes no difference at all to the bottom line at the end of the tax year. The tax liability is the same. Paying any more salary increases your tax liability.


If OP has earned £25k and been taxed on £19.5k then if they do not pay any more salary to themselves they will be due a tax rebate at the end of the tax year on some of their salary. Its not rocket science.

OK one last attempt.
The fact that the allowance is split up into 12 Monthly chunks makes all the difference. He has only used 6 chunks via PAYE for BigCo. Therefore he has 6 left as he left half way through a tax year. If you don't believe me check the PAYE tables on GOV.UK.

[TheCyclingProgrammer]

OK one last attempt.
The fact that the allowance is split up into 12 Monthly chunks makes all the difference. He has only used 6 chunks via PAYE for BigCo. Therefore he has 6 left as he left half way through a tax year. If you don't believe me check the PAYE tables on GOV.UK.

You seem to be having a great difficulty in understanding the difference between how tax is paid via PAYE and the overall tax liability for the year. PAYE is just a method of paying somebody and it divides your personal allowance up over the year so you don't pay nothing for x months and then loads for the rest of the year. It has no bearing on your true tax liability for the year which is solely determined by a) how much you earn and b) how much personal allowance you are entitled.

Can you really not see how paying himself more salary would increase his net liability, regardless of what he may or may not pay each month via his own payroll? If you can't, then frankly, you're a bit dense.

Current status: he's earned £25k. His net liability for income tax for the year is (£25k - £11k) * 0.2 = £2800. Because he only accrued half of his personal allowance in the 6 months he was employed, he's actually paid tax on £19.5k = £3900. If he does not pay himself any more salary this tax year and doesn't take dividends in excess of the £5k dividend allowance, he will be due a tax refund of £1100.

If, as you seem to be suggesting, he continues to pay himself a salary equivalent to the pro-rata personal allowance each month, i.e. another £5500 between now and the end of the tax year then yes, he would not pay any more tax *at the point at which he pays himself via PAYE*, BUT his total income will be £30.5k and his net tax liability will now be (£30.5k - £11k) * 0.2 = £3900. In other words, the tax he has already paid and £1100 more than had he not paid any more salary.

Of course, as WIB suggested he could pay another £4k without paying any NI because the extra £800 income tax liability would be cancelled out by the same amount in saved corporation tax.

Is that clear enough for you yet? If not, then you're just trolling.

[WordIsBond]

Hopefully pmasoft isn't in the finance sector, or we've got bigger troubles than Brexit.

[Lance]

OK one last attempt.
The fact that the allowance is split up into 12 Monthly chunks makes all the difference. He has only used 6 chunks via PAYE for BigCo. Therefore he has 6 left as he left half way through a tax year. If you don't believe me check the PAYE tables on GOV.UK.

Rubbish..... Tax code is annual. On a PAYE scheme it may be calculated monthly but that is pro rata (that's latin, look it up).
And when you've looked up pro rata you know why this is rubbish.

[pmasoft]

Rubbish..... Tax code is annual. On a PAYE scheme it may be calculated monthly but that is pro rata (that's latin, look it up).
And when you've looked up pro rata you know why this is rubbish.

Well ignoring all the childish insults:
The point I am trying to make is at the end of his permanent employment which was 6 months into the tax year he had only utilised 50% of his annual allowance. Therefore he would still be entitled to some tax-free income in the remainder of the tax year.

Seems quite obvious.

As for working in the financial sector: Yes over 20 years thank you, plus 30 years running my companys' payrolls with up to 14 staff and managing Payroll for Barclays for several years.

[Contreras]

Well ignoring all the childish insults:
The point I am trying to make is at the end of his permanent employment which was 6 months into the tax year he had only utilised 50% of his annual allowance. Therefore he would still be entitled to some tax-free income in the remainder of the tax year.

Seems quite obvious.

Quite obviously wrong.

You seem to be ignoring that the PAYE tax tables are effectively just an 'easy payment method' offered by HMRC, with an end of year adjustment made by HMRC (usually via tax code) to account for irregularities. Granted you will not recover the NI (except as a director).

Take a simplistic example (and again ignoring NI) - say he quit permanent employment at the point where gross earnings exactly matched the annual allowance. If there are no further earnings then he would be due either a refund of the tax paid via PAYE. However the annual allowance has been used up meaning that further earnings are not tax free.

[Lance]

Seems quite obvious.

Not to me it doesn't. Maybe I'm a bit thick.

I can't see a mention of a monthly allowance here.
https://www.gov.uk/income-tax-rates

I'm willing to accept I might be wrong so please provide a citation for a monthly tax code that can be used as you describe.

[pmasoft]

Not to me it doesn't. Maybe I'm a bit thick.

I can't see a mention of a monthly allowance here.
https://www.gov.uk/income-tax-rates

I'm willing to accept I might be wrong so please provide a citation for a monthly tax code that can be used as you describe.

I have explained it several times in several ways and it appears on a few of you disagree with my statement.

You need to think about Permiedom and PAYE, not Contractordom and PAYE. We can operate it to suit our requirements month to month BigCo doesn't

How about we use this scenario:
Before you became a contractor one assumes you were a permie. Each month your payslip would show Gross and Net pay plus EENI and Tax. It also shows taxable pay to date.

If you left BigCo A 6 months into the tax year for BigCo B Your new pay slip would still have a "tax Free" element based on your tax code. They wouldn't say "Sorry you earnt more than 11k at BigCo A so we are ignoring your taxcode and you'll need to reclaim it back from HMRC via SA"

That's why you get a P45 at the end of an employment to be passed onto new employer.