Reply to: Tax Years And Tax

[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.

[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.

[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]

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'."

[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.

[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]

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.

[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.

[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

[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]

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.

[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]

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

[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.

[VectraMan]

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