How to process cumulative tax code 'repayment' and who stumps the cash?

[THE_SPANNER]

Hi,

Sorry if this is covered somewhere already but I couldn't find anything using search.

At the start of the 2019/20 tax year I was setup with 2 jobs; my main job which was an FTC with tax code 1228L and my 2nd job at my Ltd co with tax code BR. No wages were paid in my 2nd job.

1 July 2019 was the last day at my main job after which I wasn't working with no wages.
I have now started working again and expect to be paid in December.

After a while the HMRC sent me a tax code change mentioning week 1 that wasn't what I was expecting.

I telephoned HMRC and explained to the lady that after I finished my main job I was expecting my 2nd job to become my main job and the tax code to update accordingly. And therefore at the end of the tax year a refund of any overpaid tax (due to the 4 months I wasn't working) would be issued.

She did things and then said the system had calculated a new tax code (965L issued 28OCT19)for me which is a cumulative code AND in my next pay-packet I should automatically receive a total refund of my tax free allowance for the months I have not been working.

If you've read this far..... My questions are;
1. How does my Ltd co process this cumulative tax code refund of '4 months tax allowance'?
2. Where is the money coming from? My Ltd co doesn't currently have the capital to pay out 4 months of tax free allowance?

Thanks,

Mark

 

[mattk]

Your "refund" will be in the form of reduced deductions. So for example, if you pay yourself £2,500 a month you would typically expect to pay around £290 in Income Tax. Instead, you get to keep this until your refund amount is reached.

You say you are "working again and expect to be paid in December". Is this for your LTD company or a new separate employer? If it is a new employer, what tax code are they using?

 

[THE_SPANNER]

Your "refund" will be in the form of reduced deductions. So for example, if you pay yourself £2,500 a month you would typically expect to pay around £290 in Income Tax. Instead, you get to keep this until your refund amount is reached.

You say you are "working again and expect to be paid in December". Is this for your LTD company or a new separate employer? If it is a new employer, what tax code are they using?

The HMRC lady who 'issued' the code said the accumulated tax free allowance is to be paid out in a bulk payment.

1. So If I pay myself below the tax free allowance (9650/6 tax periods remaining) for the remainder of the tax year - I then just receive a refund of any overpaid tax & unused tax free allowance from HMRC as usual?

2. No from my Ltd co as it has got a new contract which I am working on.

 

[SteveHa]

Your "refund" will be in the form of reduced deductions. So for example, if you pay yourself £2,500 a month you would typically expect to pay around £290 in Income Tax. Instead, you get to keep this until your refund amount is reached.

That is not how PAYE works. Each pay period is calculated backdated to the preceding 6 April (assuming a cumulative tax code) and any adjustment required is made in that pay period. It is not spread out amongst forthcoming pay periods.

If your company has to make a PAYE refund and doesn't have the funds to do so, it can ask for an advance from HMRC to cover it. https://www.gov.uk/payroll-funding

 

[THE_SPANNER]

Is there any online calculator or payroll software or other resource I can use which can calculate & verify numbers for me?

 

[SteveHa]

https://www.gov.uk/basic-paye-tools

 

[THE_SPANNER]

https://www.gov.uk/basic-paye-tools

It's what I use and frequently makes me
I'll have a go tonight....

Which of the other 'free' payroll software HMRC lists would you recommend?

 

[mattk]

That is not how PAYE works. Each pay period is calculated backdated to the preceding 6 April (assuming a cumulative tax code) and any adjustment required is made in that pay period. It is not spread out amongst forthcoming pay periods.

This is the scenario I have encountered:

Employee (tax code 1250L) earns £16,423 and pays £4,485 in tax in the first two months of this tax year.

Then has no income for two months.

Then with new employer a salary of £30,000 is paid for the first time in August and the figures were:

Earnings: 2,500.00
PAYE: -1,743.00
Net Pay: 4,243.00

Is this not what I described above?

 

[SteveHa]

Is this not what I described above?

No, what you described was "if you pay yourself £2,500 a month you would typically expect to pay around £290 in Income Tax. Instead, you get to keep this until your refund amount is reached." which is something else altogether.

 

[mattk]

OK, I see what you mean. Yes, my description of it being spread over several months is wrong. It also explains why my company hasn't had a tax bill this quarter.

 

[THE_SPANNER]

https://www.gov.uk/basic-paye-tools

I gave it a go but not 'sure' I was doing it correctly due to being a payroll newbie and anything to do with HMRC simply not being in Plain English!

Firstly I tried; entered my P45 page 3 details into tax code change and then did another tax code change for the new code on the P6 notification (which has blank previous pay & tax).
I then ran an employee payment for just the Nov monthly pay amount (£715) and for tax due it calculated a - figure. This seemed correct except it generated a small NIC liability.
I retried this entering Nov pay amount (£715) plus a lump sum for the unused tax allowance and again it showed a - figure for tax due. But the NIC liability was now much larger (prob the max amount).

Secondly after a data restore I tried; entered the details from the P6 notification then repeated the 2 payments in the previous step. It seemed to be calculating the tax due in the same way but again with an NIC liability.

The 2019/20 NI threshold is £719pm and my employee record is setup as a director from 06/2017.
Should it be generating an NIC liability if it knows a tax refund is being processed/included in the pay?

* The NI treatment on my employee record is set to 'same as an employee' - Is this correct?
* AND if reverting back to a single job do I enter my P45 then P6 details or just P6?
* Will it be ok to process the 'lump sum' unused tax allowance refund in the next tax period in order to submit a claim for HMRC 'funding help'?
I don't think I can get this sorted by tomorrow

Thanks,

 

[SteveHa]

Ideally, you need to process each month in turn, otherwise it will distort the result. You don't make any adjustment for the unused tax allowance. PAYE will do this automatically when you input tax code changes.

NI treatment should not be "same as an employee". Director's NI and employee's NI are calculated differently.

 

[THE_SPANNER]

Ideally, you need to process each month in turn, otherwise it will distort the result. You don't make any adjustment for the unused tax allowance. PAYE will do this automatically when you input tax code changes.

ok.
But what is correct;
1. To enter P45 then P6 or just P6?
2. To pay the 'tax refund' in one go?

NI treatment should not be "same as an employee". Director's NI and employee's NI are calculated differently.

Well it seems 'odd' bpt gives the option for an employee who is flagged as a 'director' anyway.
So it's ok to change the NI treatment midway through the tax year? (all previous submissions were no payment made in period).

 

[Newchodge]

Is there any online calculator or payroll software or other resource I can use which can calculate & verify numbers for me?

If you are running payroll you MUST use software to send your RTI return.

 

[Newchodge]

Just read the next bits. Have you been running basic tools every month and sending a nil return?

EDIT: If you have, all you need do is enter your new tax code and the amount you earn in December.

 

[THE_SPANNER]

If you are running payroll you MUST use software to send your RTI return.

Yes. I just like to double check such calculations if tools are available or manually.

Just read the next bits. Have you been running basic tools every month and sending a nil return?

EDIT: If you have, all you need do is enter your new tax code and the amount you earn in December.

Yes. I have been submitting nil returns for my '2nd job' in bpt.
I'm still on November period 8 - I'll have a play with it later