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buggula
14th June 2004, 11:37
Hi Guys,

I'm a newbie, have just started contracting.
Am using umbrella to process my payroll, have just had first payslip. The amount of tax that is being deducting seems very high. As i have submitted my P45 to them. Was wondering if anyone had an idea of the correct tax deduction amounts. The figues are:

Work period 18/05/04 - 04/06/04 @ 18ph = £2016

Deductions-
Employers NI: 192.60
Employees NI: 165.50
Tax: 358.11

Tax code: 474L

Not including service charge, expenses claim

Does this sound correct to you?
Any opinions or guidance would be greatly appreciated.

Thanks

MisterGoof
14th June 2004, 12:46
Just checked it with the calculator my accountant provides and I get

Employers NI: 207.36
Employees NI: 177.87
Tax: 336.33

So your total deduction is £716.21 and I get £721.56. But my calculations do not take nto account what youve earned so far this year.

so you seem to be better off by £5.25

Check the IR web site there should be some tables you can download to calculate it for yourself

MG

buggula
14th June 2004, 13:10
Thanks MG

I've checked and it should actually be:

£1971.05 Gross Pay for tax purposes, after Employers NI (£192.60) and service charge deducted.

And then:

Employees NI: 165.50
Tax (PAYE): 358.11

My total pay this year is £4631.81 (last job)
Total tax paid £804.39

The calculator that you mention, is that downloadable, is there a website i can get it from?

Thanks
Bug

MisterGoof
14th June 2004, 13:31
Heres a link bug

Inland Revenue PAYE tables from 18th May 2004 (http://www.inlandrevenue.gov.uk/taxtables/calc_tables_04.pdf)

Its paper based but not too difficult

Enjoy :D

MG

buggula
14th June 2004, 15:03
Cheers

Will go home tonight and get the calculator out.

Do you know the rates that Employers and Employees NI should be charged at? I know Employers is something like 12.8%.

Bug

rebeccaloos
14th June 2004, 15:54
Rates:

employee NI is
- 0% on first £89 earned a week
- 11% on money earned between £89 a week and £595 a week
- 1% on earnings above £595 a week

employer NI is the same but the rate is 12.8% instead of 11%, also I am not sure you get the 1% above £595 a week

Of course, all these figures were pre-budget so the £89 and £595 might have increased a bit.

Dividends are taxed at 19% if you are paid that way - no allowance, it's 19% across all your dividends.

buggula
14th June 2004, 16:26
Sorry to sound stupid, am i right in saying that:

Employers NI would be at 12.8% for a gross mthly of just under £2000

After this deduction, the remainder:

Employees NI would be deducted at 11%
Tax would be deducted at 20%

and for gross mthly £2880 it would be same + the 1%

rebeccaloos
14th June 2004, 16:56
Well my understanding is that Employers NI would be calculated at 12.8% of £2000 minus the allowance which is £89 a week

I may be wrong

Then, that being deducted, yes the 11% is calculated out of the remaining, again minus the allowance.

And same again for the income tax for which allowances can differ depending on your status (e.g. married etc.)

Better ask an accountant I think, or someone who has been calculating their own stuff for a while and who knows....

buggula
15th June 2004, 11:31
Thank you for your comments and advice,

I've found a previous post where they were offering a umbrella payslip checking service. Hopefully they are still accepting requests.

Bug

ASB
15th June 2004, 14:57
From the info you have provided:-

Gross Pay = 1504.68
Ers Ni = 192.60 (12.8%)
Ees Ni = 165.50 (11%)
Tax = 256.80 (273.75 @ 0; 116.53 @ 10%; balance @ 22% assumes everything correct previously).

On the face of it you may have been overcharged tax, but that depends on whether you had previously paid all that was required. Alternatively they could have processed this all as month n rather than weekly.

You might wonder why the gross pay I have listed is 1504.68 - that it because it is correct for the NI figures.

Add on the Ers NI to get to 1697.28. It would appear that 318.72 has been deducted for the fees. This would appear to be fees of 13.5% + vat which seems rather high..

Rates and allowances www.inlandrevenue.gov.uk/budget2004/pn02.htm (http://www.inlandrevenue.gov.uk/budget2004/pn02.htm)

buggula
16th June 2004, 13:58
Thanks ASB

The gross pay that you mention is actually £1,778.45 in my case. So would that mean i'm getting deduction less NI/tax then i should?

I'm getting really confused now!

The NI figures seem to look ok, just the tax seems a bit high at £358.11.

Bug

ASB
17th June 2004, 17:01
Oops, forgot about the £91 nil rate for the NI - so the NI figures you have are correct.

From the other info you have given:-

Pay in this FY:-

4631 + 1778 =6409

Tax paid in year = 804.39 + 358.11 = 1162.50

If paid in week 9 (unlikely) then from the tables:-

Free pay = 4745 * 9/52 = 821. Taxable = 5588

61.2 (153 * 40%) + 1153.81 = 1215.01.

But if they processed it as week 10 (depending on pay date).

Free pay = 912. Taxable = 5497. Total tax due = 1209.34 - 46.32 (lower rate relief) = 1163.02,

Looks like they have processed it in week 10 and deducted the right amount to me.....

buggula
18th June 2004, 13:15
So the rate of deductions is dependant and differs for each month that it is processed in?

Its just that £800 of deductions seemed to be a bit steep from £2000 gross!

ZATHRAS999
19th June 2004, 12:59
Well tax is currently about 42% of GDP so £800 out of £2000 does not seem that bad >:

However this just goes to show that an Umbrella is not exactly a cheap alternative.

Depending on contract terms you may find running via a limited company a lot cheaper. Now among PCG members the number who have been investigated currently stands at about 520 investigated and 2 found within the regulations. So purely on odds you have over 99.9% chance of being outside IR35. Being via an umbrella seems exceptionally expensive. Don't forget as well as the tax you are paying you have to pay a fee to the brolly. My own Limited Company costs a fraction of what you are paying in tax and I get to pick my training as well.

Have you thought that Route35 and PCG membership with a limited company may be a more efficient investment. See www.pcg.org.uk (http://www.pcg.org.uk)

ottorino
20th June 2004, 07:38
That figure is the total take by the government, so includes direct and indirect taxes.

Being outside of IR35 is primarily an attitude of mind. If you form a limited company and treat it like a real business and work it like one, it's very easy to stay outside IR35. It must be if I've done it since the beginning.:D

If you want to go down this route then the PCG is the place for you to learn all about it and have a helping hand along the route. Otherwise I wouldn't bother - just keep paying tax at silly marginal rates.

Incidentally 2 out of 520 is 99.62% :hat

axw001
16th July 2004, 12:30
Do you have to pay extra to use the payroll in your product?