Month 1 or Cumulative

AtticusFinch86

A friend asked me to look into a query he had about his pay packet but I've had little to no exposure to income tax so I thought I'd ask for help here.

He's recently started a new job (his first of the year) and is currently being paid on a Month 1 basis (which as I understand it, completely ignores tax credits etc. and likely means he is overpaying tax). I know he can reclaim it at the end of the year but cash today is better than cash in 4 months.

He's been told by the company that he would be better off paying his PAYE on a "Cumulative" basis and has inquired about this with Revenue. They've told him that he can't be put on a Cumulative basis because he has received rental income during the period (he owns a flat he rents out 9-10 months a year).

It didn't really make sense to me as I thought he could just go on the cumulative basis, use his tax credits, and pay the higher rate of tax on his rental income when he files his self-assessment.

Can someone tell me whether he's been given the right information? I've looked it up online but can't find anything re: a sole trader and PAYE employment.

If the information he's been given is correct, will he be put on the Month 1 basis indefinitely or just until the end of the tax year?

Any help much appreciated.

y0ssar1an22

AtticusFinch86 wrote: »

A friend asked me to look into a query he had about his pay packet but I've had little to no exposure to income tax so I thought I'd ask for help here.

He's recently started a new job (his first of the year) and is currently being paid on a Month 1 basis (which as I understand it, completely ignores tax credits etc. and likely means he is overpaying tax). I know he can reclaim it at the end of the year but cash today is better than cash in 4 months.

He's been told by the company that he would be better off paying his PAYE on a "Cumulative" basis and has inquired about this with Revenue. They've told him that he can't be put on a Cumulative basis because he has received rental income during the period (he owns a flat he rents out 9-10 months a year).

It didn't really make sense to me as I thought he could just go on the cumulative basis, use his tax credits, and pay the higher rate of tax on his rental income when he files his self-assessment.

Can someone tell me whether he's been given the right information? I've looked it up online but can't find anything re: a sole trader and PAYE employment.

If the information he's been given is correct, will he be put on the Month 1 basis indefinitely or just until the end of the tax year?

Any help much appreciated.

month 1 basis your annual tax credits are split into 12 separate packets. most likely 3300/12 = 68.75 per week. if you have any credits left over in a month they are not c/f to the next month.

on cumulative basis all tax credits (up to that point in the year, plus tax already paid)are taken into account to give an accurate representation of tax due.

emergency is where the tax credits are ignored.

i'm probably not explaining that too well, someone else might be able to give a more concise explanation. visit here for revenue's info:
http://www.revenue.ie/en/employing-people/paying-an-employee/methods-of-calculating-tax/index.aspx

i never heard of not been allowed on cumulative basis because of rental income. and you say, you return the tax due on rental income when you file your f11.