Do you understand how PAYE works?

[Merryoldgoat]

Just that really.

I run payroll and get queries which, to me, seem pretty basic. However as I understand tax I can’t decide if I’m being unreasonable getting irritated.

eg. Someone (a higher rate tax payer) wondering why they have paid an additional £400 in tax after getting a £1000 bonus.

To me that seems completely obvious but maybe it’s not.

so:

YABU - I get paid via a payroll and don’t understand how PAYE tax works

YANBU - I get paid via a payroll and understand how tax works and would expect tax to increase with additional payments.

Would agree with this!

I work in tax and have to call Hmrc often - and it's very depressing when you have to explain to them how it works - as that's just basic.

It used to be that Hmrc training was the gold standard not these days though

Well I sort of understand and can work out what I'm supposed to pay etc.
Maybe you could teach my ex employer because they didn't work it out right in 2020/21 and I underpaid on taxable benefits. Then in 22/23/24 I paid that via my tax code and could've cried with what little I was left with and with col it was hard.

I got a letter last month telling me this was their error I'll be issued a new PD11 and they will pay the under tax. How much I don't know. No one will tell me and my account on hmrc now has no tax codes available for those years. So I do know yes but others who in the job clearly don't!

Yes. Both my parents were accountants and made sure I knew.

I have had to explain tax countless times - including to my manager who wanted me to fill out the wrong form and once even more memorably - to my companies payroll who had made an error which resulted in my pay and tax being messed up.

They wouldn’t have it that they were wrong - I think I had to call HMRC in the end.

I am the accountant for a small company (4 of us on the payroll, plus 2 self-employed consultants who invoice me monthly and the owner who is paid via his loan account). At the beginning of 2023 we completed a massive project and in April 2023 we were all paid a £5k bonus. The three of us on the payroll with non BR tax codes (one is over retirement age and their tax allowance goes to their pension) were hammered in April so we saw little of the bonus but we then paid very little tax for several months as our tax allowances evened out. Being part of a small team means that I can speak to my colleagues to warn them of the consequences of tax code changes and bonus implications.

I can't see the suggestion of teaching it in schools would ever work . Learning about PAYE (which is really only half the story) would be utterly boring and irrelevant to a 15 year old considering grown ups who earn a salary can't even be bothered to understand it most of the time.

thinking about the education aspect I can remember a LOT of years ago when I was at Technical College doing an 'O' level in Personal Finance. It was excellent, covered mortgages, pensions, tax compound interest etc.

I understand it now, but the first time I got a bonus I didn't realised I would get taxed. I was probably in the 40% tax band too...

I knew the basics but having to do a tax return this year for the first time has actually been really helpful - seeing the calculation breakdown of various elements.

Still makes me cry with the amount I have to pay...

One thing I - embarrassingly - don't understand still though, if anyone would care to enlighten me, is why the amount I pay for my DH and DC to be included on my PMI is taxable. I know it's classed as a benefit in kind, but why do I pay tax if I've already paid the fee for it? (Covers eyes in shame that I can't wrap my head around this...)

I went to a pretty mediocre school but we had an excellent series of lessons on tax, national insurance, pensions and bank accounts (interest, charges etc) most left to start work at 16 so it was no surprise how much/little was left

Is it because the fee is taken from your salary pre tax rather than post tax?

I understand it but lots of people don't -- HMRC are the worst culprits! I have two jobs and I also file a self-assessment tax return. Every single year when I file my self-assessment, HMRC inexplicably decides that my full annual income for job 1 (my main job) is actually just however much I've earned in the year to date. God knows why. I've put the correct number on my self-assessment and they never mix up the other one.

I think part of the problem is that people think bonus = gift and therefore have issues with it being taxed.

I've had to explain tax thresholds to more than one employee- there's definitely a lack of understanding of the stepped approach to tax - people think that 40% tax means 40% on every penny they earn, which is why people mistakenly* think they will be worse off if they get a pay raise.

*I say mistakenly because there are a few cases where other factors like child care payments etc. come into it.

There's a vague mention in the maths curriculum of applications to financial matters, but without a more defined set of things to be taught, it's not very likely to be done well. There are probably plenty of teachers whose knowledge is hazy.
The other problem is that kids are not interested enough to retain what they are taught, particularly if it is done too early. Maybe it should be compulsory at post-16 level, now that they're all still in some form of education.

I was particularly unimpressed by DD's work on financial matters in year 9 maths - admittedly it was during lockdown, but it was entirely "ask your parents to tell you about...", which misses the whole point of covering something in school. I imagine that some will have learned all about savings, pensions, mortgages and tax rates, some will have learned about benefits, and many will have learned nothing.

I thought I understood it but had no idea that my tax code was wrong when I went over £100k for the first time last year. I knew I’d lose my personal allowance, I just didn’t realise it wouldn’t automatically be lost. I was overpaid all year and now am repaying it, so double whammy this year of paying 60% effective rate tax plus repaying last year’s overpay.

Many years ago when I worked on the phone lines for HMRC I was taught at great length how to manually calculate any kind of PAYE scenario. It’s awful that the staff aren’t trained so well these days.

I had to sit down with a pen and paper to show my husband why his tax had gone up when he got his bonus and then down again the next month and then up again a bit the month after. He’s a well educated man but he had no idea how it worked.

Yes - but I'm a management accountant so it would be worrying if I didn't! It doesn't surprise me that many others don't, and even I have no idea what on earth HMRC did to my tax code last year 😱

We do a sort of work and life skills training programme for our interns & they loved the financial literacy one which included tax codes - there was a massive range of knowledge beforehand.

Well, that used to be the rule actually. In the 80's, Thatcher introduced a rule that performance related bonuses were tax free. The aim I think was to encourage entrepreneurship and reward businesses for doing well.

The actual upshot was that suddenly noone had an actual wage any more (no min wage in those days), they were just paid "performance bonuses". Where I worked we did have a wage, but our annual bonus was renamed and we got that tax free. That went on for a few years.

So, tax free bonuses were a thing within living memory.

A lot of my friends don’t. I’m a mathsy finance person so I get it but one of my friends does not. She’s always sending me her payslips thinking she’s been over taxes etc. and I reconcile it for her exactly in a spreadsheet and send it over to her saying I think it’s fine. She also got excited because her work pay her bonuses if she hits certain targets and she thought this was great because “bonuses aren’t taxed…” I had to put her right on this.

I am on maternity leave atm and one of my husband and I need to go back four days a week for childcare reasons. Recently did the calculations, I’m a 40% tax payer and him a 20% tax payer and we’re actually better off if I go part time because of the way tax works.

People forget about the personal allowance and the 20% bit being used up already.

I think a lot of people would genuinely appreciate it if salary info was published as two things:
The gross pay
The amount you'd actually receive after tax, routine pension deductions, assuming its your only job & you don't have other income etc. This is the case for most people.

@Comefromaway - that would make sense actually, thank you!

Daftest query I had when I was running a payroll - guy that worked part time £100k+ for two days a week as a business consultant, so you'd assume reasonably intelligent.
Came to see me after he'd been there about two years, with a query kicked off by pension autoenrollment. "My letter from HR says my salary is £108k, but my payslip says £9k" - Me, "yes, you are paid every month, so you have to divide the £108 by 12" - "oh, I see"

I've had some fairly twattish questions about PAYE as well.

I just can’t understand why they prioritise teaching us stuff like Pythagoras, ionic binding and the pluperfect tense, which most of us will never use again, instead of teaching us tax. Specifically income tax, NICs and PAYE.

It feels as if the powers that be don’t want us to know how to calculate it, so we don’t dispute it if too much has been taken…

Same with pensions - would you know if your employer has calculated their contribution incorrectly and gives your pot too little?

Do you honestly spend your life not knowing anything until someone tells you?

You read. You research. You ask questions. You study.

No-one has ever sat me down to go through the subject of marginal tax rates with me. Yet somehow I understand.

I've understood how tax works since I was about 10 and heard my dad moaning about the basic rate being 8s 6d in the pound. I couldn't work out how they'd calculate that on amounts of less than £1, so he showed me how to convert the shillings and pence into a percentage. That came in handy when the currency was decimalised a few years later!

I agree that stuff like this should be taught though. Not everyone has a dad like mine who worked with money and complex calculations, and not everyone is geeky enough to ask even if they have.

I had a colleague whose net pay was a lot less than it should have been. It came out in conversation and I advised her to check her tax code. She thought a tax code was just a reference, like an NI number, and didn't realise it affected your net pay. She hadn't been issued a new code when she gave up a second job, so she was getting less than half the personal allowance and got a big refund when it was sorted out.