Do you understand how PAYE works?

I've just offered someone a freelance short-term contract, on the grounds that its a part-time role which doesn't have to be done at specific times, we can only offer them a 3 month contract initially and they also have other business interests which they want to keep going. After they'd asked me on several occasions whether they got holiday pay or sick pay, and whether our payroll agency needed their details, I was seriously considering whether that was the right decision. They're a 60-something small business owner, with a varied career, so I can't believe they've not run into self-employment before.

Lots don’t understand tax, hence why you see people thinking if they earn 20k and take home 1.5k a month, someone who earns 80k is taking home 5.9k a month.

In the grand scheme of things, some might say that it's not fair that some people only get paid around £20k a year, and yet some people get that as a bonus (albeit heavily taxed).

As a student we had to split the landline phone bill (before mobiles!) and because some people used it for hours every day, and others not at all. We (I) did it on a itemised basis.
Then I would apply the VAT.
My friend could not understand why we didn't just split the VAT 6 ways evenly or why as the person with the biggest bill by a long way, she also paid the most VAT

Wouldn’t it be nice if you got to keep 100% of bonus and overtime!

I understand it, but I have memories of a very boring student job selling ice creams on Brighton pier in winter, no customers but not allowed to shut up shop, no phones or books allowed. I amused myself by working out how much money I was earning every minute, both before and after tax, by hand using a pencil and a bit of till roll.

Helped that DM worked for what used to be the DSS, so had taught me all about tax, NI and pensions.

@Merryoldgoat just wait til they realise things like private healthcare often come off their tax code...

Don't work in payroll (or anything to do with finance) but the old man was an accountant so might consider a career change at 35!

Was she told it'd be tax free?

I’m a higher rate tax payer and yep, every bonus, overtime or any extra payment I lose 40%. Yes its disappointing as I’m far from rich on a single 63k salary in the South East. I sleep on the sofa bed in living room when DS home from Uni, but the government thinks I’m well off enough to pay 40% tax. Maybe your colleague doesn’t get it, it’s 40% every time sadly. Only time I don’t is when I get bonus in the form of vouchers, tax free so I always choose them if I can

I do the payroll at my company and ,yes I am surprised that so many people don't understand how to calculate their payroll
I've also had people accuse me of keeping thier emergency tax for myself.

I understand it but know many people really don't. They also don't understand that PAYE or not the buck stops with the individual to ensure the correct tax is paid so if a tax code is wrong they could end up owing thousands and it's still the individuals responsibility.

We have this wonderful new invention called Google! I just wish more people would actually use it, along with YouTube tutorials, etc., rather than expecting someone else to talk them through it, which I regard as very "needy".

Fair enough a couple of decades ago, or more, it was hard to find information and there was more of a need for "one to one" explanations of uncommon things, or a visit to the library to find answers in books.

But now, when nearly everyone manages to google for cute cat pictures or "slebs" news, then I think people need to take more responsibility for themselves and actually spend a few minutes to research these pretty basic "lifestyle" matters.

Oh dear!

I understand PAYE. Pretty thoroughly I would say because (a long time ago!) I used to calculate it manually. I can check that the computer has got it right.

If I think a bonus or starting mid-month or whatever is going to cause concern then I try to give warning beforehand. And I always explain that I can't put things right - only they can speak to HMRC about their tax affairs, not me.

I also work in payroll, our HR team run a monthly induction for any new joiners and we go along. Our presentation includes things like how employees access their payslips and enter their bank details into the system. But we also explain payroll cut-offs and do give some basic information on how tax works, student loan deductions etc. We have found it really helps reduce queries, especially when employees receive their first payslip from us.

I can't really vote as I work in tax, so I can sit down and actually calculate someone's tax to the penny by hand.

Thing is, even before I started this career I knew from when I got my first job at 15 how PAYE worked. I always read up on MoneySavingExpert and knew the ins and outs of various financial things (how to get best deals, what credit cards are best and how to use credit efficiently, good debt v bad debt, budgeting etc). For me though, I guess it's because I found it interesting so I read up on it. Others wouldn't so have a lack of knowledge.

I do think there should be a lesson once a week for a term in sixth form for financial basics. If they still do Citizenship, they could easily slot it in there or make it its own compulsory topic.

To be fair. When you can physically worse off for taking a bonus. Especially at 100k it is probably more disbelief. A 20k bonus can easily be 4k after deductions. On no planet is that right.

Yanbu. It's simple maths.

Any taxpaying adult should understand that if they are a higher rate taxpayer, any additional income is taxed at the higher rate.

Or does this person think that bonuses are somehow not taxable?!

I'm an actuary - so mathematically and financially literate - and it still took me forever to reconcile my national insurance when I got back from maternity leave and sat down to check my payslips. I don't know that I was every fully convinced tbh! PAYE is pretty logical, but if you've never had to work it out then I guess people don't give it much thought.

I understand the basics of PAYE.

With bonuses specifically, I understand that a standard rate tax payer who receives a bonus will be overtaxed in bonus month.

I think it's because the payroll system thinks the employee is going to earn that amount for the rest of the tax year, though I don't actually understand why PAYE imposes higher rate / additional rate on someone who doesn't actually exceed that threshold.

I also understand that the overpayment will be refunded over an undetermined period following bonus month, unless it's at the end of the tax year in which case the refund might work differently.

I know month 1 / week 1 tax codes screw things up royally.

Exactly how it all works is completely alien to me. I do actually trust that it is correct, as I genuinely believe that PAYE is one of the few things that the state has done very well indeed.

In my experience of helping DS sort out his (overpaid) tax and tax codes with HMRC when he was a student, it would appear that some of the staff at HMRC don't understand how it works either! I had to advise him to insist on speaking to someone more senior to get any common sense.

Yeah, it’s shocking how little people take responsibility for their own money. I expect many many mistakes are never picked up.
and it is taught in schools in all sorts of ways (teacher)