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.

I do payroll - I am astounded by what people think I am empowered with. And the understanding is not proportionate to earning - one woman had to be spoken to very firmly about the attitude she was giving me and she was on £1000/day - so definitely not expecting high earner to have the first clue either. You are paying the tax the Governrment/HMRC has decided what you are paying - I do not decide and if you think it's too much, you'll need to speak to HMRC to get your tax code change.

I do not take your tax - the GOV take your tax.

Yes, plus how compound interest works. That is why DH and I put so much in our pensions.

When you pay a bonus to an employee, their tax code gets updated very promptly to take the boinus into account and we are required to put the new tax code into our payroll in a timely fashion - there is no need to reclaim tax. Some months we have people who didn't do any work being paid overpaid tax only. Our payroll software isn't the most sophisticated system available but it still makes adjustments so none of our team need to reclaim tax from HMRC.

Even within payroll staff now though. In the old days you had tax tables and cards to fill in for everyone. Now you enter the figures into payroll software (we have no choice when RTI was introduced we had to stop using manual wage cards) and the deductions are all calculated for you. So many don't learn the process behind it.

My maths master at school used to teach us how to calculate tax and NI. He used to say he didn't care if we got our O-Level or not (this was a long time back) but we would know how to check our payslips!

Yes because then I don't have to have tantrums or cry discrimination because I don't get what I want

Well yes, I would know if my employer wasn't paying the correct amount to my pension because my payslip.tells.me what my and their contributions are each month. I know from my employment contract what percentage each of these should be so it is very easy to see uf the amount is incorrect.

People who earn over £100k a year are not universally knowledgeable, they often apply their brain cells selectively - I get daft questions from them all the time - it's fine I expect it - but I won't tolerate being blamed for taking their money - that shit gets nipped in the bud very quickly.

The other thing people dont seem to understand is compound interest on their mortgage. They seem to think if they borrow £100k at 6% they'll pay back £106k 🙄. Not how it works!

My 13yr old have covered all of this at school though, they do teach it, maybe some of us conveniently forget or didn't pay attention in the first place.

This is the key thing. It 's your job to explain this stuff if asked.

I guarantee the person asking you the question also gets asked questions which seem easy to them.

Sounds like the type of teachers we need today! I remember having a couple of "old school" teachers like that back in the 80s and the gave all kinds of knowledge beyond the text books/syllabus (and still found the time to teach the syllabus!). They were the kind of teachers who would "fill in" with extra information (based on their real life) on lessons such as last day of term etc where other teachers would just put on a video or give you a "fun" worksheet to fill the time.

Similar to how seemingly a majority of graduates don't understand how student loans work, despite being intelligent/educated enough to have a degree! Like virtually anything else, a quick Google search would tell them all there is to know about how they work, yet they don't seem to have a clue.

YANBU however I would say if you are constantly answering the same questions then how about doing a FAQ, cheat sheet type online document. That way you can direct people there first. Maybe have it put on the bonus letters a link to this. An online tutorial? Going through a payslip. You may think you shouldn't NEED to but it seems from your post the need is rightfully or wrongfully there. So make life easier for yourself. We all struggle with different things at work. If the same problem comes up again and again then clearly people do need support.

Thing is that even those who make their money from, say, IT, seem numerically challenged sometimes. I've had loads of IT contractor clients earning £500-£1000 per day, who've been completely bamboozled by misunderstanding something as simple as VAT on an invoice. They can't "get" that 20% of the net amount isn't the same as 20% of the gross amount. A VERY common scenario is them trying to claim 20% on the gross amount paid for say, a mobile phone contract, and their eyes glaze over when you try to explain that 20% VAT included in the gross £120 isn't £24, but instead is £20, i.e. £100 plus £20 gives £120. Something so simple, yet seems beyond even high earning IT consultants whose entire job is underpinned by Maths!

My husband is an additional rate taxpayer and gets annoyed that his company tax his bonus 'wrong' and he has more to pay in his tax return every year.
It's literally how losing your personal allowance works, unfortunately, and tax codes don't work. It's called a nice problem to have.

Why do you think tax codes don't work for paye - my understanding is they are updated to correct for a change in income and the salary is adjusted the following month. Which bit doesn't work?

I thought this was going to be a thread to point out to people that it’s their personal responsibility to check that the PAYE tax they’re paying is correct - not HMRC’s responsibility, or their employer’s.

So many people think that what they’re taxed via PAYE is infallibly correct and then if it turns out they’ve underpaid and HMRC want to make an adjustment they’re outraged.

I understand why they’re outraged, I just wish everyone knew it’s their own personal responsibility to check their own taxes.

Basic tax code doesn’t account for loss of personal allowance, student loan or loss of childcare. So actually no you won’t. If you have children you will take home less.

The tax calculator takes account of the loss of personal allowance, you can see it in the screen shots.

No, I didn't take account of student loans nor childcare. But neither did the post I was replying to mention those. The latter isn't to do with take home pay.

There is NO situation where you get paid more but take home less. Simple.

Yes there really is. It’s the famous marginal tax rate at 100k. I know I’ve been there. By the time all deductions are taken and the loss of childcare. It takes to 125k to be clearing the same as you did at 99k. Anyone who ends a post with simple doesn’t understand what they are talking about IME.

Graph 7 provided a nice picture for you to see the issue.

Childcare cost is not take home pay. That's a separate issue. How many kids you have (as per your graph) is not related to the tax take.

I'm very aware of the marginal rates. There is no situation where you earn more but take home less. You lose £1 of tax free allowance for every £2 earned over £100k. How can that possibly mean you take home less as your salary increases? It simply doesn't. I'm not defending the way the marginal rates work, I don't really care to be honest, but I do at least know how they work.

Feel free to try it yourself on all the many tax calculators available.

You didn’t read the post you responded to properly did you? I was talking about marginal rates. Keep up. There is that issue. Try reading what I’ve linked - it may help. You don’t understand marginal rates - as you’re showing. Pretty apt for the op really. I took home less between 99k and £123k ish so I put it all into pension until I passed it. As I say graph 7 will help you understand it. Hence why the last government had to change consultant pensions and the tax there.

Yes I used to do the payroll!

I read it.

You said: "In essence, you can take home less on 125k in comparison to 99k."

That is simply untrue.

You would be horrified to know the number of higher and additional rate tax payers that I look after who don’t even bother to check the payroll or pension portal that we make available to them.

Even more of them think that the company is paying in 8% of their pay into their pension pots - no you numpties, it’s based on ‘qualifying earnings’. So your 300k basic salaries and £1m bonuses means only £4k a year is going in your pension pot…