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Where Taxpayers and Advisers Meet

A Question about not being Taxed

angel55
Posts:1
Joined:Wed Aug 06, 2008 3:47 pm

Postby angel55 » Fri Dec 29, 2006 12:57 pm

I have a question, I recently heard from a collegue at work that for the past 2 months he has not been taxed at all, he is a new starter and is only tempory untill the end of this year, he isnt a student and is 19, and it is his first job, he informed me that you do not get taxed untill you earn £5000 in a single job at which point you can simply leave, get another job and call the tax office at which point you can "reset" you earnings thus not ever in reality ever getting taxed, untill of course you earn more than £5000.

Now I've never heard of this seemingly fantastic "fact" however as he seemed sure as "someone he knew did this" I would really apprectiate any clarification on this matter, or if it is in fact possible but only on certian circumstances.

Many thanks for your help, but i apologise if this has been asked or if there is a answer somewhere but I really wasnt sure where to look, so thanks again for any help.

Instinctive
Posts:1797
Joined:Wed Aug 06, 2008 3:15 pm

Postby Instinctive » Fri Dec 29, 2006 1:13 pm

The amount upto which you can earn tax free each year is called your personal allowance. This is £5,035 for the current tax year and will increase to £5,225 for the next tax year.

All earnings in any given tax year are aggregated and count towards the single annual allowance. Therefore, if you earn £4,000 in one job, you only have another £1,035 allowance left to use at your next job after which you start getting taxed.

When you leave one job, you receive a form from your employer known as P45, which shows how much of your annual allowance has been used up previously and how much is still available at your next job. The previous employer sends a copy of P45 to the tax office and you have to give one copy of P45 to your new employer. These then gets matched up to link your previous employment history with your new employment.

So your friend is not strictly correct in his thinking.

Ramnik

al_eebee
Posts:899
Joined:Wed Aug 06, 2008 3:40 pm

Postby al_eebee » Fri Dec 29, 2006 2:01 pm

Bar room lawyers & friends who "know" doncha just luv'em. We do get to hear some corkers don't we. :)

I presume that he left college last summer and has now started this job.

Because of the way PAYE works to collect tax on a cumulative basis he would have 9/12 of this years personal allowance available to set against all he has earnt since last April - so about £3,775.

January that will go up by about £420 as PAYE gives him another 1/12 of the personal allowance.

Once his salary exceeds the relevant proportion of personal allowances for the year he will start to pay tax.

As above moving jobs does not reset the clock & give him another £5,035 to earn before he pays tax.


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