Earning less, paying more

Grolschevik

What are the circumstances that would lead to the situation where a PAYE worker moves from a five-day week to a four-day week, and has their salary reduced accordingly, but ends up paying more tax than they were before?

namenotavailablE

Possible reasons: Were the employee's tax credits reduced for some reason? Was there a prior period under-payment of tax that had to be collected in the current pay period?

Try checking my Excel calculator (see my signature for link) to see if there's something it throws up.

Grolschevik

I don't have all the details. A friend was telling me it happened to him, but he couldn't understand what his payroll person told him. Said it had something to do with tax bands.

It just sounds counterintuitive to me! Would his credits be reduced by going to the four days?

namenotavailablE

Would his credits be reduced by going to the four days?

No. Credits are generally a fixed amount for the year (some exceptions). Even if you start work late in the year you can claim a full year's credits.

Said it had something to do with tax bands.

If your friend is married and transferred some of his SRCOP (the amount of income taxed at 20%) to his spouse, that could account for more tax arising on him.
Typically, each person receives €32800 SRCOP but married couples can transfer a maximum of €9000 to the other spouse. If he had done this after going on a 4-day week, it would means that he'd likely have more tax to pay after such a transfer to make up for the fact that a larger amount of his income is taxed at 41% [previously, the excess over 32800 was taxed at 41% but now it would be the excess over 23800]. His spouse would however receive a tax reduction (increased net pay) so it overall will balance out..

Grolschevik

Nah, he's single! I'm telling him to ring the Revenue and check it out, but he's pretty clueless about this stuff.