Emergency Tax

Dxm87

Hi,

We have a client who took a withdrawal of £30,000 gross and was deducted emergency tax so received £18,219. Does anyone know how HMRC got to this figure? I found a calculator on Hargreaves Lansdown but unfortunately it doesn't show how they get the figure. I don't deal with tax too much and this more just for me as it's doing my head in haha.

Irene

Have you tried Prudential's Calculator? https://www.pruadviser.co.uk/xpf_calculators/emergency-tax-tool-pruadviser/?utm_source=redirect&utm_medium=301&utm_campaign=/xpf_calculators/emergency-tax-tool/

Essentially, HMRC calculate it on a Month 1 basis, ie, you will receive the same earnings for 12 months. Therefore, you receive 1/12th of each of the tax bands.

As your client has withdrawn £30,000, your client will also lose their Personal Allowance, as it is assumed their earnings are greater than £100K.

I hop this helps

Irene

Nath

They have calculated the emergency tax correctly. As Irene has mentioned it will be calculated on a month 1 basis so they are only using 1/12th of the allowance:

So for £30K it would have been done as follows@

£1041.67 at 0% = £0 tax (being 1/12th of personal allowance
£3125 at 20% = £625 tax (12/12th of basic rate band etc etc)
£9375 at 40% = £3750 tax
£16,458.33 at 45% = £7,406.25 tax

So total tax paid of £11,718.25 and take this off £30K to give you £18,218.75.

They can reclaim the overpaid tax back but it depends if they have taken a one off withdrawal or whether they already take income etc depends on the route they take to claim it. The correct tax payable will depend on their other earnings for this year.

I don't believe Irene is correct about losing the personal allowance though (may be wrong!!) it will depend on earnings over the course of the tax year and whether they actually earn over the threshold amount.

Hope this helps.

Nathan