Help DD & I understand her ?tax refund?

[QueenofQuirkiness]

My DD21 is a university student. She had a temporary full time job over the summer working 9-5, and as her weekly earnings were in excess of the Personal Allowance amount (as in, if she was to work that job for an entire year she would earn >£12,500), she was taxed under PAYE.
In total she earned a few thousand pounds from this job and was taxed a few hundred pounds.

Her job ended in September and she returned to university, where she started a different part time job in November. She’s received her first payslip for this job and was surprised to see that, in addition to being paid her wages, she’s also been paid a few hundred pounds, corresponding exactly to the amount she paid in tax. The money has already been paid to her bank account.

To me it seems as if this money is the tax refund as it’s the exact amount of tax she paid, but we’re just a little surprised as:

1. the money (wages + lump sum of a few hundred pounds) has been paid to her by her new employer and not HMRC
2. we both were under the assumption that tax refunds happened at the end of the tax year in April

Would the money have been repaid now because she’s changed jobs? DD has checked her government tax account which has been updated to reflect the end of her old employment and the start of her new one.

Regardless, between now and April it’s very unlikely that she’ll earn enough to have her overall income for the 2024-25 tax year be >£12,500, so I don’t expect there’ll be any issues with her being repaid.

We just want to know if this is a usual practice before DD contacts her new employer to check that’s definitely where the money came from (at risk of maybe making us both look a bit clueless - I’m in my fifties, have worked all my adult life, and am surprised by this!)

Yes, that sounds right - HMRC now tries to do PAYE in “real time”, so no need to wait for year end for a refund.

Yup HMRC are much better at this stuff now although I quite like a tax refund.

Yes this is how it works. Tax is calculated on a cumulative basis from 6/4 to 5/4 the following year. So if you have a few months of not earning (ie not paying tax) you will have more allowance to put against your cumulative earnings the next time you get paid.

I've probably not explained it very well but it is possible and probably right.

The employer doesn't actually "pay" the tax refund. When they send all the deducted tax from all their employees to HMRC they will deduct the amount that your daughter is getting back from that total. So if their tax payments due on behalf of their employees total £5000 and your daughter is due £500 back they will only send £4500 to HMRC so it's cost neutral to them. It's a long time since I did a pay roll but I think this is a basic explanation.

where you have a job that falls under PAYE, the tax free allowance £12,570 is split into either a weekly or a monthly amount depending on whether you get paid weekly or monthly. It then operates on a cumulative tax year to date basis

so in her case from April until "the summer" (lets say end of May) she had no income but accrued 2 months of tax free allowance (12,570/12 x 2 = 2,095)
So when she started work in the summer she would have tax deducted from her pay when her cumulative pay topped 2,095)

when she started the job in Nov she had by that time an entitlement of 8/12ths (April - Nov) of the tax free allowance ie £8,380

the total pre tax earnings from the summer job plus the first month's gross pay in the Nov job would be added together and from that total they would deduct 8,380 to see if she had yet gone over the threshold at which she would need to pay tax.
Clearly she had not, therefore all tax paid for the year to date was refunded.

It is a shame they do not teach this stuff in school as it is very common for new employees to not understand how cumulative taxation works

PS national insurance does not work on a cumulative basis. If your earnings in a single month are more than £1,048 then you will have NI deducted from it even if no income tax is due because you have not yet breached the cumulative income tax threshold

Thanks all for your useful explanations; it makes sense to us now! And DD in any case is pretty happy with her ‘surprise Christmas tax refund bonus’!

Yes that's right. I once worked a Christmas job at M and S having taken 6 months off due to stress at a significantly higher paid job but they had over taxed me. I was very surprised when I was only expecting a couple of hundred quid one week to have received £1200 as my tax rebate!

Just run payroll at work and someone who earns quite a bit less than I do will have a pay packet that's about the same as they are due a refund and I'm having a bit clawed back. So be it, lucky them!