Income Tax

[chatterbugmegastar]

A friend asked me about her son who has just finished uni and has got a job working as a waiter.

She thinks he won't pay any income tax until he's earned more than his personal allowance

So £12,500 or whatever it is now - but she's not sure if that correct

That can't be right can it? Paying no income tax at all for months?

I've googled the answer but can't find anything definitive - any advice ?

Everyone has a tax free allowance so you don't pay tax except on any amount earned over the threshold.

That’s right, he won’t pay tax until her earns over the threshold.

So he won't pay any income tax at all this financial year? He's not going to reach the allowance of £12,500 before 5/4/21.

For some reason I thought the personal allowance was divided by the months left in the year and you could earn up to that monthly amount each month before paying income tax. No idea where I got that idea from though

No PAYE works differently to that. Depending on his pay period (weekly, monthly etc) then his tax code for that employment (which may be 1250L if his only employment but can be different as it is a personal tax allowance) will determine what Income Tax is deducted in that pay period.
If the tax code is Cumulative, then the payroll system will look at all earns to date and calculate Income Tax based on earnings so far in the tax year. If the tax code is non-cumulative it will calculate based on the pay period only.

For example:
September is month 6 of the tax year. If his personal tax allowance is £12,500 then until end of month 6 he can have income to date of (£12,500/12)*6 which is £6250.
If he has a non-cumulative tax code such as 1250L M1, then in Month6 he can have (£12500/12)*1 which is £1250 income that month before Income Tax applies.

There are also other deductions that will/may appear on his payslip:
National Insurance... there is a threshold for this per job, so the amount of NI depends on the amount of his gross pay.
Pension.
Student Loan.

So he won't pay any income tax at all this financial year? He's not going to reach the allowance of £12,500 before 5/4/21.

He may pay it and get it rebated back again.

He needs to be on a Cumulative tax code. This should happen without him needing to do anything but sometimes needs a bit of prompting.
Once he has a couple of payslips he should open a Personal Tax Account www.hmrc.gov.uk/personal-tax-account which will let him view some data that HMRC holds about his pay. He can then use that online system to Query Taxcode if he is not on a Cumulative code. If he needs help, a first point of call is work payroll as they are used to having 'new starters' and can answer queries about the payslip. Once he knows what type of taxcode he is on, then he can query with HMRC.

Thank you! This is all very helpful.

So being on a cumulative tax code is 'best'?

How do we get him onto that type of tax code?

Is it simply about prompting the employer?

Yes, he want's a cumulative tax code.

He may already be on it. He needs to look at this payslips and on his Personal Tax Account. If he has W1, M1, or an X on his payslip in the tax code area, then he is most likely on a non-cumulative code.
1250L X, 1250L M1, 1250L M1 are all non-cumulative codes.

His employer cannot fix that for him. He has to sort that with HMRC and the easiest way is to do that online, via Personal Tax Account or via www.gov.uk/check-income-tax-current-year

Key things I would do:

• Make sure he gets a payslip every time he is paid.
• Learn how to read the payslip. He can simply google a question such as What does tax code 1250LX mean?
• Set up a Personal Tax Account www.gov.uk/personal-tax-account so he can see some of the data which HMRC has about his employment(s).
• If he gets Income Tax deductions then use the HMRC online service to query his tax code... web chat is also sometimes available and is handy for having a chat with a HMRC advisor about tax codes.

Thank you so much