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bigduckontax, Accountant
Category: Tax
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Why is PAYE calculating tax too high?

Customer Question

Why is PAYE calculating tax too high?
Submitted: 5 months ago.
Category: Tax
Customer: replied 5 months ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Customer: replied 5 months ago.
National Insurance category letter Total earnings for National Insurance purposes (£) Earnings at the Lower Earnings Limit (LEL) in the year to date (£) Earnings above the LEL, up to and including the Primary Threshold (PT) (£) Earnings above the PT, up to and including the Upper Earnings Limit (UEL) (£) Total of employee's National Insurance contributions in the year to date (£) Total of employer's National Insurance contributions in the year to date (£)
A 11000.00 5824.00 2236.00 2940.00 352.80 398.54
Customer: replied 5 months ago.
I am only paying the directors (myself and my wife) 11,000 each for the year. I did not expect to pay any tax on that amount.
Expert:  bigduckontax replied 5 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

My immediate response would have been that their tax codes are incorrect, but 1150L is correct for the 17/18 tax year. However, the PAYE Tables assume that if you receive say 1K in Month 1 you will continue to receive 1K or thereabout every month thereafter. Thus one off payments skew the system and this could well be the case here. If no further fees are paid in subsequent months the Tables will indicate a refund each month until the last month leaving the employee, and Directors are deemed employees, tax neutral.

The effect on the NI deductions for one off payments can be even worse.

I do hope that you have found my reply of assistance.

Customer: replied 5 months ago.
At what point is the tax actually paid?
Customer: replied 5 months ago.
This is for 2016/2017.
Customer: replied 5 months ago.
Can I avoid the obvious and lengthy refunding process?
Customer: replied 5 months ago.
Is there any way to use the basic paye tools to show that they should not be charging so much tax, to avoid the pay/refund situation?
Expert:  bigduckontax replied 5 months ago.

Well under PAYE tax is paid or refunded month by month and in theory will make the employee tax neutral at the year end. Have you been entering data for PAYE correctly, on line, month by month?

You can, in two ways, by only paying lump sums in month 12. Alternatively paying 11K at 916.67 monthly. Otherwise you will throw the PAYE system out of kilter.

Customer: replied 5 months ago.
I am/did pay in month 12.I am newly setting up payroll.Thinking about just not using paye for 2016/2017. And accounting for income via self assesment.Then setting up 2017/2018 mthly...
Customer: replied 5 months ago.
how do I show it is a mth 12 payment?
Expert:  bigduckontax replied 5 months ago.

You do not need to because you are paying in month 12 only so correct deductions should be indicated.

Directors must be paid through the medium of PAYE.

Customer: replied 5 months ago.
what should the tax be on 11000k wages for the whole 2016/17?
Expert:  bigduckontax replied 5 months ago.

Nil, because the Personal allowance in 16/17 was 11K I assume that your follow up had an error and you meant 11K, not 11000K!

Customer: replied 5 months ago.
why so high? And how can I change it so I don't overpay?
Expert:  bigduckontax replied 5 months ago.

I do not know. If you only make one payment in month 12 then no tax should be deducted. If you make 12 smaller monthly payments in 17/18 then again there should be no tax deductions.