Personal allowance - should I be getting taxed?

[cherryduck]

I've just checked my latest payslip and noticed that my tax code is 1000L which means I have a personal allowance of £10000, my gross pay this year is £5499.99 which is obviously under the personal allowance but I'm still being taxed, for a total of £599.40 thus far this year. Should I be getting taxed?

Thanks.

[AvocadoK]

Yes. Your tax free allowance is spread over the year. If you are paid monthly, you get one twelfth of the £10,000 each month. If the system waited until you have earned £10,000 before charging tax, then hardly anyone would pay any tax for the first few months of the year!
AK

[cherryduck]

Haha wouldn't that be wonderful though! Well thanks for the answer, that's a shame. Would be cracking to get some money back in time for holidays.

[cherryduck]

Sorry I can't see how to edit my post to avoid double posting. 1/12th of £10,000 is £833.33, so how does that come along monthly? Because my monthly wage before tax is £1833.33, after it's £1454.89, which means I'm paying £378.44 in tax, so are you saying without the personal allowance I'd be paying an extra £833.33 in tax a month?!

[JRG]

Your personal allowance determines how much income tax you save. For a £10,000 personal allowance you save £2,000 of income tax each year (i.e. £10,000 x 20%), which equates to £166.66 each month (i.e. £833.33 x 20%). For every £1 reduction in your personal allowance you will pay an extra 20p in income tax.

[cherryduck]

That's a confusing setup, the HMRC website doesn't make that clear at all. Thanks for the clarification.

[bd6759]

Its not that confusing.

Your personal allowance is deducted from your pay. If your pay is £1833 per month, you will pay tax on £1000. (1833 - 833). At 20% that would be tax of £200. You shouldn't be paying £378 in tax. I think your figure includes all deductions, such as national insurance, pension etc.

[ESTRELLA]

I'm confused- how does this person benefit from the tax free allowance? Surely his/ her tax code prevents tax being deducted?
Does a tax refund have to be claimed?

[JRG]

The tax code doesn't prevent tax being deducted, it determines the amount of tax to be deducted. Your taxable income (i.e. the amount you pay tax on) is calculated by deducting your personal allowance from your annual income.

If your annual income is £10,000 and your tax code is 1000L (i.e. your Personal Allowance is £10,000) then your taxable income is £0, so your tax would be £0 x 20% = £0.

If your annual income is £15,000 and your tax code is 1000L (i.e. your Personal Allowance is £10,000) then your taxable income is £5,000, so your tax would be £5,000 x 20% = £1,000.

If your annual income is £20,000 and your tax code is 1000L (i.e. your Personal Allowance is £10,000) then your taxable income is £10,000, so your tax would be £10,000 x 20% = £2,000.

Simples!

[ESTRELLA]

But cherry duck has an allowance of 10,000 , earns about half that and is being taxed. How can that be right?