Why does my income tax vary from week to week?
You’ve earned the same amount of money in two separate weeks and you’ve paid different amounts of tax on them. The natural conclusion is that something has gone wrong. Your tax is based on your earnings, which are the same, so surely the amount of tax you pay should be the same … right?
We can see why you’d think that. In conventional employment, when you can expect to be paid every week or month for years at a time, that is exactly how it works. In the longer term, it works like this for umbrella employees too. Over the course of a tax year, the only factors affecting the amount of tax you pay are the amount you earn and the value of expenses you claim in that year.
However, in the short term your tax is also affected by whether you were paid last week or month, and the week or month before that. Because tax is calculated using the figures for the tax year to date each time you’re paid, the flexible way in which contractors work can mean your tax varies, even between payments of the same value. Again, it should be noted that these variations are short term and will “work themselves out” by the end of the tax year. So, when might you see variations?
If you’re paid the same amount every week/month for the whole tax year, you’ll pay the same amount of tax every week/month. Whenever this isn’t the case, your tax will vary. Most people understand that they’ll pay more tax if they earn more, but the most confusing variations happen when you’re not paid every week/month. If you start work part way through the tax year, or you have periods during the tax year when you don’t get paid, this will affect the amount of tax you pay in each payment. For more information, see our article on this subject. [Read the full article on Orange Genie Latest News]
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