heavily taxed on holiday pay, can anyone advise?

[sliceofsoup]

DH has moved from agency to employee in his place of work. He had 12 days of holiday accrued, which the agency has paid him for today, in with his wage for last week.

However by my calculation, we have lost over a weeks wage in tax. I assume because the wage was so high it has been taxed as if that is his normal weekly wage. Is this correct?

If so, is there anything we can do about it now? Or do we have to wait until April to see if there has been an overpayment in tax and he is due a rebate?

Financially we are ok, but he now has no paid leave entitlement in his job until it accrues again, so we need that money to cover the time off he already has booked iyswim.

Holiday that is paid is taxed at the same rate as salary, so if you are a basic rate tax payer, you will pay out approx. 33% of the additional pay in tax & NI. For a higher rate tax payer, this will be approx. 50%

However, the if he will be taking unpaid leave for the holidays that you have booked that he hasn't accrued, this will be deducted from his gross pay too, so he wouldn't be paying the tax on it again.

i think its correct to pay tax on it. dh had a bonus once and nearly half of that went in tax.

Of course he should pay tax on it. That isn't the issue.

The issue is that he has been taxed as if he earns 31k a year, when in fact he earns 12.5k a year. The only way I can see it resolving is when he is unpaid for his leave that will bring his yearly income back in line, and then in April he will be due a rebate. But that doesn't help us now.

Currently he pays £15 tax per week so £15 for the week he worked, plus 3 weeks holiday means he should only have paid £60 tax, but he has actually paid £200 tax.

If he has effectively been paid three weeks in one week yes his tax will be higher. If he hands in his P45 to his new job it should be sorted out long before April and gradually come back in his pay.

Make sure he hands in his P45 straightaway and get him to check with payroll that they have the correct (1060L if normal, no benefits etc) tax code is inplace before he gets paid

If it is you will get the tax back in his first months pay, or 1-3 weeks if weekly paid.
hth.

It all depends on what his tax code is sliceofsoup

Assuming that he is on a cumulative tax code, it would all depend on his taxable earnings year to date and the tax that he has paid year to date. Even though he has paid more tax in this one week, like Lonecat said, if his P45 has been handed in it will sort itself out as he won't be earning that amount every week. So depending on how quick his P45 is processed, it may be gradual or you may find he gets a tax rebate one week.

If he starts the new job straight away and doesn't actually take the holiday as holiday then yes it will all be taxed as if he's earned it in one week as your tax free allowance is cumulative weekly.
If he is having a gap of 3 weeks before starting the new job then it will even out over the first couple of weeks.
I recently went from agency paid a week in hand, to employee paid same week, and was stung for tax on the week the two overlapped.

I had a not dissimilar situation when I was paid my accrued holiday in a lump sum at the end of my mat leave. For the next 6 month or so my payslip showed a tax rebate each month until it had evened itself out again. Actually worked out quite well for me as I didn't go back to work after mat leave so it meant I had a bit of extra money coming in for a while.