Is it tax inefficient to get paid irregularly?

pietromas

Could some kind and knowledgeable soul please clarify something simple for me.

Say I'm PAYE but my payment is irregular. E.g. I normally get paid 2.5k a month but every so often I get nothing and then two payments combined into one big juicy 5k payment the subsequent month. Do I by the end of the year, end up paying more tax than I would have if I got 12 regular payments of 2.5k?

If I understand the tax credit system correctly (which I quite possibly don't!) the credits that weren't used in the month I didn't get paid get carried forward and combined with the ones I get the next month, so at least 2/12 of my tax free sum is available to be applied to the 5k above.

But come the end of the year, will I have paid more tax that I would have if I had regular payments because more of my salary is being taxed at a higher rate when the cheques get lumped together like this or does it all work out the same in the end irrespective of how many installments your salary arrives in?

Orim

My understanding of the tax system is that you may end up paying more over the course of the year but you will be able to claim it back at the end of the year.

pietromas

pietromas wrote: »

Could some kind and knowledgeable soul please clarify something simple for me.

Say I'm PAYE but my pay...

Let me suppose some numbers to explain the way it works in my head.

Let's say my monthly tax free sum was 500, and the first 1k was taxed at 20% and the remainder at 40%.

Paid regularly I'd pay:

(1000*.2 + 1000*.4) * 12 = 7200

.

If two of the payments were combined once, I'd end up paying

(1000*.2 + 1000*.4) * 10 + (1000*.2 + 3000*.4) = 7400

That can't be how it works, can it?

pietromas

Orim wrote: »

My understanding of the tax system is that you may end up paying more over the course of the year but you will be able to claim it back at the end of the year.

Oh. So in the example I just supposed, I'd be able to request a refund of 200 at the end of the year?

It would be my responsibility to do the calculations and claim the right amount, or would I just say "Oi, I think I paid you too much give it back"?

Thanks.

Legend100

no it doesnt work the way you have described it, as you are paye worker, your income and tax will be on a cumulative basis.

your 20% cut off accumulates over the year on an equal weekly/monthly basis so if say your cut off after week 10 was 15000 (just estimating here, havnt checked the rates off hand) and you got have got a total of more than 15K in the year at week 10, you will be taxed at 41% on the excess

Then in week 11, if when you get paid, your cumulative gross is less than the cut off (cumulative) for week 11, you will get the excess refunded to you from week 10 in your payroll in week 11

Normally it wont make a difference when you are paid for paye purposes, it used to make a big difference for health levy purposes but that does no longer exist

dbran

Hi

Just to clarify what Legend said, normally you are on cumulative basis and it should all balance out in the end as Legend said.

However if you are on a week one basis. Then it could very well happen that you would be paying more tax then you should. You will then need to contact revenue and arrange for it to be refunded by either asking for a p21 statement of filing a tax return.

Kind Regards


Dbran