Tax Years And Tax

[Peoplesoft bloke]

As you say Vectra man the umbrella company would not pay a refund of tax when a contractor leaves as payments are made via PAYE. Tax is paid as you go along and is calculated for each pay period.

Agreed - I thought we were talking about a case where the employee hadn't actually left.

[LisaContractorUmbrella]

Agreed - I thought we were talking about a case where the employee hadn't actually left.

If you are between contracts yet continue in the employment of the umbrella company over the course of one financial year e.g. work 6 months don't work for 2 then work the other 4 months you may receive a tax rebate when you resume working in month 9. This would be caused by the fact that your 'annual' pay had reduced e.g. if at the 6 month point you had earned £30,000 this would be projected for PAYE to £60,000 per year (30,000 divided by 6 multiplied by 12) and tax would be calculated accordingly. If however, in month 9 your earnings were only £35,000 your projection for PAYE would be £46,666 (35,000 divided by 9 multiplied by 12) and tax would be calculated on this, lower, figure.

HTH

[Peoplesoft bloke]

If you are between contracts yet continue in the employment of the umbrella company over the course of one financial year e.g. work 6 months don't work for 2 then work the other 4 months you may receive a tax rebate when you resume working in month 9. This would be caused by the fact that your 'annual' pay had reduced e.g. if at the 6 month point you had earned £30,000 this would be projected for PAYE to £60,000 per year (30,000 divided by 6 multiplied by 12) and tax would be calculated accordingly. If however, in month 9 your earnings were only £35,000 your projection for PAYE would be £46,666 (35,000 divided by 9 multiplied by 12) and tax would be calculatetd on this, lower, figure.

HTH

Evidently this is the practise of your umbrella, but the entitlement to a refund arises in month 7 in your example. The PAYE tax calculation is a simple "what you have paid so far" vs what the tax tables say you should have paid so far - usually the result is that you owe tax, but if you're not earning (and you've paid the proper amounts to date) a refund is due. In parctice, as I said before, employers often choose not to pay the refund immediately - that's up to them, but it is due.

[Peoplesoft bloke]

http://www.hmrc.gov.uk/employers/working_out.htm

"Column 7
Take the previous amount in column 6 and the amount you now enter in column 6. Take the lower amount away from the higher amount to give the 'tax deducted or refunded in the week or month'. If the amount you now enter in column 6 is the higher amount, the difference is the tax to deduct from the employee. If the previous amount is the higher amount, the difference is the tax to refund and include in the payment you make to the employee. Mark any refund entry 'R'."

[tim123]

Peoplesoft bloke:

I think we all understand the calculation.

The question is, *should* the brolly process a pay slip for that month, or not?

tim

[Peoplesoft bloke]

Peoplesoft bloke:

I think we all understand the calculation.

The question is, *should* the brolly process a pay slip for that month, or not?

tim

It's up to them - they won't get shouted at by HMRC if they wait until the next period of gainful employment. Some employers do, some don't.

[Peoplesoft bloke]

and just to add one other factor - occasionally HMRC will instruct an employer to operate tax on a non-cumulative basis for an employee - if this is the case, or course, no refund will be paid.