P45's - Calculating Tax

nicfd

Hey, We have somebody doing our wages for us but I think they're calculating them wrong. If I give the scenario below, could somebody please advise on the situation.

Basically, an employee was left off for a month and given a p45. On his return a month later, he handed in his p45 and was re-registered.
Now say last week he earned €530.00 with Stand Cut Off above that and Tax Cred approx. €96. Would it stand to reason that he is due to be charged €10 tax as opposed to '€0'? (€530*20%-€96)

When he was re-registered, would Revenue have forwarded a new adjusted figure to the Payroll people (e.g. say he had tax cred of €1200 for the year. Worked 1st Jan - 31st Aug, (Used up tax cred of €800) off Sept and then back 1st Oct for rest of year. Would it be €400 left to be divided out by remaining three months or would he just have the €300 per month he would have had anyway and loses out on Sept. tax cred?)

Sorry if I've confused this but I'm in that whole can't see trees from the woods place as I've thought myself into confusion!

seamus

He doesn't lose September's tax credits. It doesn't work like that. From Revenue's POV, the employee tax credits apply to the entire year, not to any particular part of the year. But for companies' sakes, it makes sense for them to apply tax credits on a per-payroll-period basis.

If for the sake of argument, the tax credit was €100/month, then the employee has €400 tax credits left for the period October - December.

I would assume most companies calculate the tax credits by dividing the available tax credits by the number of payroll periods outstanding in the year, i.e. €400/3.

It's worth noting that in this calculation, unused tax credits roll from month to month (but not from year to year). So, if his tax credit at the end of October is €134, and his tax liability is €104, then the €30 of unused tax credits "roll forward" to November.

The obvious issue with this method is that at the end of December, the employee will have paid roughly €80 in tax (going by your calculations), but will have around €80 in unused tax credits.

So what employers normally do is refund the excess tax paid, directly to the employee, meaning that at the end of October, the employee pays no tax, but also receives €80 (or whatever) back. For November & December then, the standard monthly tax credit amounts apply. At the end of the year then, the employee should have only paid as much tax to the revenue as is required.

Someone who actually works in Payroll might be able to give you better advice on what the normally done thing is.

crazzzzy

Its difficult to comment on it without knowing all the details (I'm not asking for them either)

hes credits could be affected if he was getting social welfare or if he was working somewhere else in between.

If you are going by his first payslip then they may have him on emergency tax until his new tax credits arrive.

You would need to work it out on his gross wages for the year to now to see how much of his cut off point & tax credits are already used. If he hadn't worked for a month then those credits accumulate anyway so I'd presume he wouldn't pay tax for few weeks.

nicfd

Thanks for that both of you. But, when he re-registered, would different info come from Revenue as by submitting his P45, it would be like starting with any new company? They would have to acknowledge that and send out the form stating cut off and credits etc. (I don't know if they do that, just assuming) If this does exist, would it have the remaining balance built in?

Also, my more pressing concern is the topic about his tax creds. If by the calculations in the first post, he is due to pay €10 tax per week but the org is charging him €0, could he be liable to pay the excess if he's audited because our payroll had been calculating this wrong.

Don't really want to ask payroll in company as to be honest, not sure they know what they talking about.

crazzzzy

was he working anywhere else or on social welfare? If not then credits would be the same.

It is probably right that hes not taxed at the moment cause he has built up credits during the month he wasn't working. Say he has cut off point of 700 p/wk & tax credit of 96 and earning 530 p/wk

Payroll probably uses a computer package to calculate the tax anyway so it should be right if they are using it properly.

I doubt he will owe any tax at the end of the year