Introduction to Income Tax and NICs Pay As You Earn and income tax
Calculating the tax
Where, for t he appropriate week/month, the employee’s total taxable pay to date is:
• More than the amount shown in Column 1, but is not more than the amount shown in Column 2 The amount of tax due to date is calculated by adding together the tax shown in Column 3 and the tax due at the higher rate on the excess over the amount shown in Column 1 by reference to Table D on page 10 (for England and Northern Ireland)
• More than the amount shown in Column 2 (or 4)
The amount of tax due to date is calculated by adding together the tax shown in Column 5 and the tax due at the additional rate on the excess over the amount shown in Column 2 (or 4) by reference to Table D on page 11. So, Table C1 saves having to go to the basic rate table to calculate tax up to this point. It is therefore only necessary to calculate the higher rate tax on whatever is being paid above the figure in the Column 1. Similarly, Table C2 saves having to go to the basic rate and higher rate tables to calculate tax up to this point. It is therefore only necessary to calculate the additional rate tax on whatever is being paid above the figure in the Column 2 (or 4).
If the exact earnings figure is not shown in Table C or D, then add together two or more values to make up the amount of the total taxable pay.
5.9.3 Operation of the regulatory limit
Apply the taxable pay tables B to D (as appropriate) to the total taxable gross pay, to determine the amount of tax due.
Check that the amount of tax due does not exceed 50% of the gross taxable pay this pay period. (Note that the gross taxable pay this period is the gross pay less any ‘free of tax’ deductions ). This amount is the regulatory limit and it avoids an unreasonable tax burden on the employee by overriding the tax due calculation. If the tax due is less than this limit, then proceed as normal. However, if the tax due is greater than this limit, then the tax to be deducted is restricted to the limit. Any tax not deducted due to the regulatory limit must be carried forward to the next pay period and re-applied, as follows. In the next pay period, calculate tax due as normal, adding any tax not deducted from the previous pay period (the cumulative tax method handles this automatically). Compare the total tax due with the regulatory limit in the current pay period. Apply the regulatory limit and carry forward any tax not deducted to the following period.
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