Didn't get taxed on my first wage?

So I just got my first paycheck today and this is my first 'proper' job. I've been assigned a tax code (1060L) and I did pay N.I. contributions but I didn't pay tax, is this normal? I earn £25k a year and I started work just over 2 weeks ago. Is it true that I don't get taxed on the first £10,600 of my earnings? Or is this completely wrong and I'll get taxed massively come my next paycheck?

Thanks for your help!

Reply 1

Jubz1

Yep, you don't get taxed at first. Once you've exceeded your that amount then you have to pay taxes

Reply 2

estel

Sometimes it takes a month or so for your pay slip to settle down, but if you've got any concerns ask HR / whoever is responsible for pay. You would expect to see an income tax deduction on your first month's earnings. Your tax-free allowance would be spread throughout the year so that each month you should receive (approximately) the same.

Reply 3

Illusionary

Original post by Jubz1

Yep, you don't get taxed at first. Once you've exceeded your that amount then you have to pay taxes

Original post by estel

Neither of these are quite correct.

Assuming that the correct tax code is applied right from the start (as appears to be the case here, assuming just one job and no other taxable income/benefits), the personal allowance is spread throughout the tax year, yes. However, that doesn't necessarily mean that you would expect to see an income tax deduction on your first earnings if you start working part-way through the tax year. Your first income tax deduction should occur once your cumulative income for the tax year to date (i.e., since 6 April) exceeds the proportion of your personal allowance applicable to the proportion of the year that's elapsed.

For example, if you start work six months into the year (which is approximately where we are now) and are paid monthly, you'd not expect a deduction if your income to date is less than 6/12 of your personal allowance. The standard allowance is £10,600, so 6/12 of that is £5,300.

Moving on one month, the cumulative income above which you'd expect a deduction is than 7/12 of £10,600, or £6,183. The combined impact of the way that this works means that you're likely to have lower levels of deduction in your first months (or weeks) of work. Eventually, though, a constant level of income should lead to a constant level of deductions.

Reply 4

Jubz1

Original post by Illusionary

Oh, okay, cool. I was basing it off where I first worked, none of us got taxed so I assumed it'd be the same. Thanks for correcting me

Reply 5

Illusionary

Original post by Jubz1

Oh, okay, cool. I was basing it off where I first worked, none of us got taxed so I assumed it'd be the same. Thanks for correcting me

No problem. :smile:

It's quite a common misconception that under PAYE you're not taxed until your cumulative income exceeds your personal allowance, but the way that it actually works allows for a smoother pattern of income and deductions.

Reply 6

Reue

Original post by Illusionary

It's quite a common misconception that under PAYE you're not taxed until your cumulative income exceeds your personal allowance

Christ, could you imagine if that was the case? Most people find budgeting hard enough... what would it be like if you had 0% tax for the first 6 months and then ~40% tax for the next 6? :/

Reply 7

Illusionary

Original post by Reue

Christ, could you imagine if that was the case? Most people find budgeting hard enough... what would it be like if you had 0% tax for the first 6 months and then ~40% tax for the next 6? :/

Well, in that situation it wouldn't go straight from 0% to 40% - the basic rate (20%) would kick in first - but yeah, it certainly wouldn't make planning easy!

Reply 8

bluebubble1986

Hi What happened in the end? Did you get taxed massively this month instead?
I too have just got my first proper job after graduation in July. I am on 20k. My first month (sept) I worked 3 weeks. I paid 78 in tax... This month I got that 78 tax from last month refunded?? So I haven't paid any tax since starting this employment?? How can this be right? Is it a mistake? Am I going to have a massive bill come my way soon? The only deductions I have had were NI and local LGP contributions.. #Concenred

Reply 9

Illusionary

Original post by bluebubble1986

Read my post, you'll be fine and this doesn't sound unusual or incorrect. The only added complication here will be that you may have been on a "Basic Rate" (BR) or 0T tax code for the first month, with a straight 20% deduction on the assumption of a zero available personal allowance - which now has been corrected.

If you are still worried, please share your gross income, deductions and tax code from each payslip to date, with their date, and I'll explain.

(edited 8 years ago)

Reply 10

bluebubble1986

Thanks for your reply.
My Salary is 20,253.00First month I only worked 3 weeks as I started a week into Sept. Payslip dated 30th Sept.
Basic 1,350.00 Tax code 1060L 1
Tax 77.40
NICs 69.28
LGPS 78.31
Total Deductions 224.99
Net pay 1,125.21
Second payslip 30th Oct 2015
Basic 1,687.75 tax code 1060L
tax paid 77.40- (I take it this means I was refunded what I paid last month??)
NICs 105.06
LGPS 97.88
Total Deductions 125.54
Net Pay 1,562.21
Thank you

Reply 11

Illusionary

Original post by bluebubble1986

Yep, nothing to worry about here.

First payslip
The "1" in your tax code is important - this indicates a 'non-cumulative' code, which disapplies the usual calculations that correct your tax deductions from month to month and just calculates deductions with 1/12 of your personal allowance available.

Income = £1,350
Personal allowance = £10,600 for the year, equivalent to £883 for the month
Pension contributions = £78 (not taxed)

Income subject to 20% income tax = £1,350 - (£883 - £78) = £389
Income tax deduction = £389 @ 20% = £78

Second payslip
The non-cumulative code has now been disapplied, so we work on total amounts for the tax year to date, since 6 April.

Cumulative income = £3,038
Cumulative pension contributions = £176
Cumulative personal allowance = £10,600 * (7/12) = £6,183, as we are seven months into the tax year.

Income subject to 20% income tax = £3,038 - (£176 + £6,183) ... is negative
Your cumulative income tax deduction is therefore £nil
Income tax paid to date = £78
Income tax deducted to reach the 'correct' amount of £nil = -£78, i.e., a refund.

The key thing to notice here is that your applicable personal allowance for the period to date jumps massively with the disapplication of the non-cumulative tax code. I'd expect you to have a few more months of no income tax being deducted before your cumulative income catches up with your cumulative available personal allowance - you'll probably first get a deduction in your February or March payslip. Once we get past 5 April, things start afresh as it's a new tax year.

(edited 8 years ago)

Reply 12

bluebubble1986

Brilliant!! Thank you for spending time working it all out for me. Much appreciated. So I guess I will have a good Xmas then :smile:

haha

Reply 13

Amy-Lee

Will i get taxed on my first wage of £1500 a month ive never worked but this will be my first job and my first paycheck. Im not good with maths so i dont really understand it all, Would be great if someone could help me out my mum earns 850 a month and shes never paid tax she has to NI.

Reply 14

shaymarriott

Original post by Amy-Lee

Yes you will.

Posted from TSR Mobile

Reply 15

Illusionary

Original post by shaymarriott

Yes you will.

Posted from TSR Mobile

Assuming that tax codes are correctly allocated and applied, this is incorrect - please read above to understand why.

Reply 16

shaymarriott

Original post by Illusionary

Assuming that tax codes are correctly allocated and applied, this is incorrect - please read above to understand why.

You don't get all your pay free of tax up until you hit the tax free limit, you pay it spread out over the year.

Posted from TSR Mobile

Reply 17

Illusionary

Original post by shaymarriott

You don't get all your pay free of tax up until you hit the tax free limit, you pay it spread out over the year.

Posted from TSR Mobile

I know. Again, please re-read the advice covered above.

However, to put this in the context of Amy-Lee's specific question, the result of this is that for those starting work part-way through the tax year, they have a significant proportion of their personal allowance built up and as-yet unused. We're now four months into the tax year, meaning that 4/12 of the personal allowance is available against taxable income - that's £3,333.

Therefore, on a gross income of £1,500 per month, starting now, no income tax should be deducted for the first four months of employment. It takes until month five before cumulative income for the year catches up with the available personal allowance, at which point £7,500 will have been earned and the available personal allowance will be 8/12 of £11,000, or £7,333.

Of course, this assumes that the first salary payment is immediate. If it's paid in arrears, as is likely, the first income tax deduction would be delayed a little further.

There should, however, still be a NICs deduction due regardless, given that these are calculated for each pay period in isolation - I make it about £99/month.

(edited 7 years ago)

Reply 18

sabyj

Hi Illusionary

I wonder if you could help me as well. I started work in Scotland on the 15th of January. My annual income is £34520.
For January here are my details:
Tax code: 0T
Basic salary: 1726.01
National insurance:108.95
Income tax:317.40
Pensions plus:138.08
Amount received: 1161.58

February
Tax code: S0T
Basic salary: 2876.67
National insurance:235.98
Income tax:533.40
Pensions plus:230.13
Amount received: 1877.16

This is my first job in the UK so I am a bit confused by the amount I am being taxed, which seems like a lot especially in February. Does this seem right? Would really appreciate your input

Thank you

Reply 19

Tiger Rag