Why Does My PAYE Tax Change Each Month?
If your PAYE Tax changes each month and you are keen to know why it happens, you will find some guidance through this blog post. In addition to exploring the reasons why your PAYE changes, we will also discuss how tax is calculated under the PAYE system and how you can check if you are paying the right amount of tax.
Why Does My PAYE Tax Change Each Month?
If your PAYE tax changes each month it could be because your income changes each month. While this is not the norm as wages are generally consistent and so is the amount of your Personal Allowance; however, if your earnings change with a change in output, you can expect to have different amounts of income each month. This can cause your PAYE tax to change with a change in earnings.
In usual cases, someone’s PAYE tax changes when their income increases or decrease, their Personal Allowances changes, they get married, change jobs or they start or stop receiving a taxable benefit like a company car.
Sometimes PAYE tax can also change when someone shifts from a non-cumulative tax code to a cumulative one. This happens when someone starts a new job in the middle of a tax term and their entire year’s salary is not taken into account for a tax deduction under the new tax code.
However, these changes do not take place very frequently and certainly not each month. If you are not sure of the reason(s) why your PAYE tax keeps changing each month, you should speak to your employer or the HMRC to learn the facts. It is possible that you are being assigned an incorrect tax code which could lead to overpayment of income tax.
How Is Your PAYE Tax Calculated?
Your PAYE Tax is calculated using the following steps:
- First, your tax allowance is calculated. In most cases, this is an individual’s Personal Allowance added to any other allowances and job expenses.
- Then, your deductions are calculated. These are incomes for which tax has not been paid and may include any part-time work or certain state benefits.
- After this, the deductions are subtracted from the tax allowances. The result is your pre-tax income. If this amount equals personal allowance, your income remains tax-free.
Based on this, a tax code is assigned to you. The most common tax code during the 2022/23 tax term is the 1257L tax code. This tax code indicates that your tax-free Personal Allowance is £12,570 and only income above this amount will be taxed.
How Does The PAYE System Work?
The amount of income tax deducted through the PAYE system for salaried employees is based on some key factors:
- their income
- their tax code
- their Personal Allowance
According to this system, your income determines the taxable amount of earnings once Personal Allowance has been deducted from it. If there has been an increase in your income (this may or may not be due to a change in jobs), your PAYE amount can increase.
If you want to check your PAYE tax code, and amount of Personal Allowance or correct your employment details, you can do this online using your Government Gateway user ID and password.
How Do I Know That I Am Paying The Right PAYE Tax?
If you want to check whether you are paying the right amount of PAYE tax, you can review the below classification of income tax deduction:
- 0 per cent income tax is charged when income is up to £12,570
- 20 per cent income tax is charged when income is between £12,571 and £50,270
- 40 per cent income tax is charged when income is between £50,271 and £150,000
- 45 per cent income tax is charged when income is above £150,001
You can also estimate your Income Tax for the current year using an online tool from the UK Government’s website.
The above discussion has helped in assessing some of the reasons why your PAYE Tax and your tax code changes. One of the main reasons for this change could be a change in income which determines the amount of tax that will be deducted from your income. If none of the reasons applies to you, you may need to ask your employer why this happens or contact the HMRC for advice.