Wondering how to make sense of your payslip each month? You may see chunks of your money being zapped by NI and tax, but what is PAYE? Here we show you how you can claim tax back via PAYE for a PAYE Tax Rebate.
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What is PAYE?
PAYE or pay as you earn is the system used by HM Revenue & Customs (HMRC) to deduct tax from employees or from people receiving income from other sources, such as a pension.
PAYE tax is collected by an employer and sent to the tax office weekly or monthly, depending on the agreed payment arrangement. How much tax an employee needs to pay is worked out by the tax code given upon start of employment.
Any income tax is deducted from an employee’s wages or other income straight away before the net income is paid to them.
PAYE and your tax code
It is important for an employee to get the right PAYE tax code as it determines how much tax will be deducted from their earnings.
It is the tax office’s responsibility to inform your employer annually what your tax code is and each and every time there is a change in your circumstances.
A tax code is usually composed of 3 or 4 numbers and 1 letter, such as 163L, and is indicated on an employee’s payslip. Those set of numbers indicate your Personal Allowance or the amount of tax-free money you can enjoy before you start paying taxes.
There are instances when you are assigned the wrong tax code that may result in either underpaid or overpaid taxes.
Find out if you’re on the right tax code… what is emergency tax?
Are you due a PAYE tax rebate?
As previously mentioned, there are cases when you end up paying too much or too little tax even under PAYE. It is important that you find out to spare yourself from possible repercussions which will cost you hundreds or thousands.
You may end up paying too much tax if you have the wrong tax code, did not claim tax relief on job expenses, or is not a UK resident for tax purposes.
In case you overpaid tax, you will be eligible for a PAYE tax rebate that you can claim.
The PAYE tax year
It starts on the 6th April and ends on the 5th April of the following year. Make it a point to remember the start and end of the PAYE tax year so you can file your return on time and not miss the deadline.
If you are up for a tax rebate, you can claim back up to 4 tax years of overpayment of income.
You will be given several forms related to PAYE tax that you can use to claim a rebate or for other purposes.
• P60 will show your total earnings and tax paid and will be given to you at the end of each tax year. (Why is your P60 important?)
• P45 will show you how much income tax you’ve paid so far within the tax year. This will be given to you when you leave your job.
• P11 will show non-cash taxable benefits like a health scheme.
HMRC debts and PAYE
In the event that you owe HMRC tax, your tax code will be changed so you can pay more tax each month and clear your debt. But there is a limit to how much HMRC can claim.
If you’re earning less than £30,000, for example, the maximum amount the tax office can collect per tax year is 10% or £3,000. But if you earn over £30,000, the maximum amount claimed will depend on how much you earn over that amount. The tax office can collect a maximum of £17,000 annually if you earn £90,000 or over.
Ways to claim your PAYE tax rebate
There are two ways to claim your PAYE tax rebate – using tax rebate services or doing it yourself (DIY). Between the two, the former would work to your advantage since you will have access to professional support and advice. You’re also guaranteed to a maximum income tax rebate if you have overpaid.