Tax Years And Tax

[Jsecure]

All,

So I'm about to start contracting with an umbrella company... Will they charge me the right amount of PAYE, based on what I've earnt so far this tax year, in my PERM job, and the rate I'm receiving from my contract...

And then next tax year, let's say I work nine months at a set rate of pay. If I take three months off, will they give me a tax refund for the fact I actually earned less that year from not working the last three months, or do I have to get that from the tax man somehow?

Thanks

[Peoplesoft bloke]

All,

So I'm about to start contracting with an umbrella company... Will they charge me the right amount of PAYE, based on what I've earnt so far this tax year, in my PERM job, and the rate I'm receiving from my contract...

And then next tax year, let's say I work nine months at a set rate of pay. If I take three months off, will they give me a tax refund for the fact I actually earned less that year from not working the last three months, or do I have to get that from the tax man somehow?

Thanks

Ahem - I'm tempted to say ask them, but - under PAYE they should take the details from your P45 and continue from there. As for the refund - they can give you a refund in the last three months - they just knock it off what they send to the tax man so there shouldn't be a problem.

[VectraMan]

Same as any other employer. They won't give you a refund, but HMRC will.

[NotAllThere]

So Peoplesoft Bloke and VectraMan give opposite advice. The umbrella should behave just as any other employer. They'll take your P45, deduct your tax each month, adjusting for fluctuations in income as they go. If you quit the umbrella after a few months (which may affect your right to claim travel and subsistence expenses ), then they may make a refund of overpaid tax, or you may have to get it from HMRC.

[LisaContractorUmbrella]

An umbrella company does indeed pay in the same way as any other employer - via PAYE. When you join your umbrella they will enter your P45 details into their payroll system - your P45 will detail your earnings and tax paid to date. PAYE works on a cummulative basis so your earnings from that point will be added to the figure on your P45 and your tax will be calculated accordingly. Basically, payroll systems work out what your earnings and tax would be for a 52 week period; this figure is then divided by 52 and multiplied by the number of weeks worked to that point - this gives your accumulated tax position - tax paid previously is then deducted from this figure to give you your tax payable for the period. When you leave your umbrella company they will issue you with your P45 which will detail your earnings and tax paid before you signed up with them and your earnings and tax paid whilst you were with them i.e. your year to date figures.

HTH

[VectraMan]

So Peoplesoft Bloke and VectraMan give opposite advice.

Clever that.

I got stuck on "emergency" tax when I was with an umbrella, which then carried on the rest of the financial year with my Ltd. I got it all back the following July after doing a self assessment.

I don't see how the umbrella can refund your overpaid tax, unless it's a small adjustment applied via the tax code which then affects subsequent tax. But then I only understand PAYE to the extent I need to.

[LisaContractorUmbrella]

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.

[tim123]

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.

But what happens if you don't leave the umbrella, but continue 'working' for them on nil salary for the month. Would this not generate an automatic tax refund?

tim

[LisaContractorUmbrella]

But what happens if you don't leave the umbrella, but continue 'working' for them on nil salary for the month. Would this not generate an automatic tax refund?

tim

I cannot think of an instance when a zero value payment would be processed but a much lower payment than normal can generate a small rebate sometimes if you are on a cummulative tax code

[Peoplesoft bloke]

But what happens if you don't leave the umbrella, but continue 'working' for them on nil salary for the month. Would this not generate an automatic tax refund?

tim

Indeed it could (depending on the figures) - in this case the umbrella should, like any other employer, refund, and this is what I meant in the answer I gave.

In practise some outfits hang on to the refund as an incentive for the employee to return from their "break". As for emergency tax code, the overpayment from this can be refunded during employment if the employer is given notification of the proper code.