How does tax work?

[biggerthanthebiggest]

Stupid question but if your tax code is 1257L does that mean you pay tax on the earnings over that amount each month or is it all tax freee until you reach 12,570 per year?

My pay changes each month as I'm term time in a school , if that makes a difference

The latter. In calculating your tax your employer will likely spread the tax code over a year so each month you'll get 1/12th of 12,570 tax free, and then be taxed on any excess.

Tax code 1275L means that you have the normal tax free allowance of 12750.

If you are employed your employers use the tax code to work out how much you will pay over the year and divide it by 12 so you pay the same amount of tax per month.

just seen your update. Not sure how it works if you don't get paid every month, but I'd imagine they might spread it over the months of the tax year in which you will get paid.

It's complicated as it's seems to vary. Last month I earned over 1257 yet didn't get taxed so I'm unsure

There's a few ways of working it out but they'll aim to make sure you've paid the right amount of tax by the end of the tax year on 5 April. By then you should have paid 20% of your income above £12570 (assuming you're not in Scotland where the rates are slightly different)

But it's also normal for TTO workers in schools to receive their pay averaged over the whole year, so they don't face periods of time with little or no income. If this doesn't happen where you are, tax could also work differently.

That's because it also works on a cumulative basis.

You get £1,047.50 per month before you need to pay tax. By the end of October your cumulative tax free amount for the year is £7,332.50 (£1,047.5 x 7 mths).

If you'd only earned £6,000 from April to September your October earnings of £1257 would take you to £7,257 for the year to date. That means that your earnings so far for the year are still below the year to date tax free allowance.