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.

Oh, childhood memory - I remember thinking why on earth are people making a big deal about an extra penny on income tax. Thinking it was literally one penny per person per year.

I'm not sure how we'll ever get around this op. As pp said would reaching it in schools actually help?

I love a good fight with HMRC. Plus, I've had many of them tell me incorrect things which I've challenged.

It's the people who say they don't want a pay rise that takes their salary above the 40% tax threshold because they think they'll be worse off as they think they'll get taxed 40% on their ENTIRE salary that astonish me.

To be fair it's not 'Pay as you earn' it's 'Pay what HMRC think you going to earn this tax year'. So if your pay changes during the tax year HMRC will incorrectly tax you. I assumed that employers actively told HMRC if my salary changed but they don't, which caused a major screw up.

Yes I understand how PAYE works and would realise if I am a HR taxpayer a £1000 bonus will only be £600 after tax.

Employers send a submission to HMRC every pay day. The idea was that HMRC could keep themselves and paye codes up to date on a “live” basis. Of course despite forcing that onus onto employers, HMRC don’t uphold their end and don’t actually bother to review their weekly/monthly data in most cases.

Employees should therefore keep HMRC updated directly via their online personal tax account, which is actually a pretty good way to stop problems arising with things like new benefits, going over £100k etc., multiple concurrent jobs etc

It isn’t that that causes the problem. It was the withdrawal of everything else which caused marginal rates of almost 70-90%. This is now at 100k and you can have marginal rates of 100%+. In essence, you can take home less on 125k in comparison to 99k.

Thus sort of thing IS taught as part of pshe curriculum

I do understand how it works.
But that doesn't stop it from being stupid when a £1000 bonus to an employee who earns £45k is taxed at 40% as if they had received a £1000 per month pay rise, and they end up having to wait to the end of the tax year and go through an unnecessary rigmarole to reclaim overpaid tax to recieve £200 of their bonus. That's a fault of paye softwares. It should be possible to tick a box that says yes obviously this employee has recieved more than 1/12th of the threshold between basic and higher rate tax for this month, but across the tax year they will stay under the threshold so calculate at basic tax rate only. It's unreasonable to make paye employees deal with the admin in these cases.

Tbf the PAYE 'calculator' is a tad basic these days with its predictions. There should be a box to tick:
Yes this is a salary increase from now on, employee now earns £4k not £3.5k, from here on with. Adjust tax code.
No! this is a 1 off bonus of £1000, don't tax the poor beggar to death please! And make him wait till tax y/e or worse still afterwards to recalculate.

Sorry, I just typed exactly what Opi just said!

I've just done that on a basic tax calculator online and you take home c£900pm more on the higher salary. That's on a standard tax code, not taking into account any pension.

Also, the post you're replying to is correct, people do think that once they go into the 40% tax band everything is taxed at 40%, people also think they get taxed higher on second jobs (because they don't have the allowance twice I guess).

It’s where you get robbed horribly for working your arse off

We are taught mathematics and given logical problems to solve within those types of class.

We can surely use the internet to search for either a tax calculator or research how it would work if we get a personal allowance of £12,500 up to £100k and then pay 20% on the first part and 40% over x amount.

Why do so many people expect to be spoon feed at school? Should we be teaching independent research and how to find an answer to a query at school using basic materials and sources? Should we be teaching critical thinking and curiosity?

Yes, exactly this! You see it all the time for everything. Local Facebook posts, are the trains off, what time is the bus to wherever, how many stone is 100kg. Fick sake if you managed to type the question into Facebook then you would have been better off typing it into Google and getting accurate answers

However, this sort of thing isn’t taught and so I can understand why so many people have no grasp of it.
The kind of things are what should be taught in school. how to manage bills, taxes… all should be covered.
I think it is a case of 'when the pupil is ready, the teacher will appear'; lots of schoolchildren see no relevance and have no interest. I know that many don't like Maths and say "what's the point in Pythagoras?" but even why you try to apply Maths (e.g. explain PAYE) they are still not interested.

Some people understand only when it suits them. I've known plenty of people who can't be bothered to add or multiply correctly when it comes to the employer's business (stocktaking, doubling quantities, etc) but are suddenly on the ball when it comes to their payslip.

I was talking about the people I used to work with (I was a teacher) who said they'd rather not have the £1500 quid (or similarly quite low) pay rise as it took them just above the 40% threshold - and they genuinely believed it meant they'd have to pay 40% on their whole taxable pay.

Yes. But I am an accountant, so I really should ☺️

Best is when someone on, say, Facebook, is advised to Google and they say they don't have the internet! They clearly don't realise that you need the internet for Facebook. Doh!!

Yes! A very common misunderstanding, even though a quick google search would put them straight. Seems some people would rather believe "pub talk" from strangers or just half reading a media headline and misunderstanding it is more reliable than actually researching it for themselves.

I'm a Payroll Manager so i feel your pain!!

Every April my team put a tally up of calls they take that say "i haven't been paid £12,000 this tax year yet so why am i paying tax??"
Blows my mind.

@MikeRafone

Why do so many people expect to be spoon feed at school? Should we be teaching independent research and how to find an answer to a query at school using basic materials and sources? Should we be teaching critical thinking and curiosity?

Problem is that schools/teaching really hasn't changed in best part of 50 years. It's still far too much about memory and far too little about research and thinking on your feet. 50 years ago, people needed to remember things and needed a "bank" of knowledge, as resources were more scarce and there were far fewer "crutches". With the advent of computer power and the internet, there really isn't a need for most people to remember so much stuff, whether it's facts or a strict procedure for working something out. There is software, apps, etc for literally everything as well as Google etc. We need to be teaching people how to find answers to problems, we need to teach critical thinking/logic etc so that people can work out for themselves what are reliable sources, what aren't, so they can choose the right software/app for their problem, etc.

Yes but this goes back to taking a bit of personal responsibility. A quick Google will give you a tax calculator that will do that for you. The money saving expert one is what I tend to use. They have calculators for everything finance.
I just wonder why in this day and age where literally most people have access to the Internet 24/7 it doesn't occur to them to use it for anything other than social media, shopping and ordering a takeaway.

@senua

I know that many don't like Maths and say "what's the point in Pythagoras?" but even why you try to apply Maths (e.g. explain PAYE) they are still not interested.

I think that's more a case of them losing the will to live with Maths at an earlier age, so they start to believe the old mantra of "I can't do Maths, me!" as some kind of demented badge of honour.

Looking at my son's secondary school Maths, re loans etc., there was also far too much emphasis on the "Maths" side of it, i.e. turning a loan into a pretty hard equation, for compound interest, rather than actually emphasising the real life side of it. It was just divorced from real life reality as it was all couched in mathematical terminology rather than actually emphasising, in simple terms, the practical effect of over-paying a loan or saving small amounts for many years. If someone is a bit unsure of equations, they're not going to be receptive to learning about compound interest if it's all based on an equation rather than real life.

Same with pythagoras, Trig, etc. It's seldom taught in a "real life" understandable and practical way that a pupil can relate to. Maybe at the earliest of stages, there is an element of that, but the teaching soon accelerates and turns into abstract concepts that a teenager will struggle to be able to see applying to their real life.

@rainbowunicorn

I just wonder why in this day and age where literally most people have access to the Internet 24/7 it doesn't occur to them to use it for anything other than social media, shopping and ordering a takeaway.

Nail on the head there!