2020欧洲杯网站

What being on furlough means for your tax bill

A sudden drop in income could push higher earners into a lower tax bracket

More than 6 million people have been put on furlough2020欧洲杯网站 under the Government-backed scheme and most will receive a different pay slip to usual. 

2020欧洲杯网站For the first time, the Government has stepped in to pay people’s wages in a bid to stem the widespread layoffs expected during the pandemic and lockdown. 

If your employer has put you on furlough and applied for a grant to cover your wages, you will receive 80pc of your monthly salary up to £2,500 unless your company has agreed to top it up. 

Do you still have to pay tax on the Government money after taking a pay cut?

Yes, furlough pay is subject to the same tax and national insurance contribution rules. Tax thresholds remain unchanged, which means that basic-rate payers should not see a difference in the way their tax is calculated.  They will continue to be able to earn £12,500 a year before having to pay income tax.

This means those receiving the upper limit of £2,500 a month can receive the first £1,042 tax-free as their personal allowance and pay 20pc on the remaining.

However, higher and additional rate taxpayers, those above £50,000 and £150,000 respectively, could be in for big changes if their monthly income drops to the £2,500 cap. This sudden change in income would push them into the basic rate tax paying bracket temporarily.

2020欧洲杯网站The same basic rate tax code would apply to their pay for the months during which they are furloughed. 

2020欧洲杯网站For example, someone earning £70,000 a year would under normal circumstances receive the first £12,500 tax-free, then be taxed at a rate of 20pc on income between £12,501 and £49,999 and at 40pc on the remaining £20,000. This is divided by 12 to calculate monthly income. 

Workers on £70,000 a year would receive £5,833 a month pre-tax deductions. Removing the personal allowance, they are subject to tax on £4,791.33.

Of that £625 is paid for the portion at 20pc rate, while £666.67 at the rate of 40pc. This results in a take-home pay of £4,541.33 and a total tax bill of £1,291.60 a month.

However, if they are put on furlough and their monthly salary drops down to £2,500, they will only pay £291.6 in tax after their personal allowance. 

Sean McCann, of insurance firm NFU Mutual, said: “The personal allowance and tax thresholds are divided by 12 so if you earn less in one month you will pay less tax.”

He said anyone in this position should contact HMRC to notify them of the change.  You can check your tax code and personal allowance on the Government website and contact the department directly about changes that affect your tax code.

Workers who earn over £100,000 have a different tax code because of the personal allowance taper. They will be taxed at a higher rate despite their temporary lower salary.

2020欧洲杯网站The personal allowance is reduced by £1 for £2 of income over £100,000 until it disappears completely at £125,000. Workers in this situation must notify HM Revenue & Customs about their incorrect tax code due to the change in circumstances. 

2020欧洲杯网站Tax credits payments will not be affected for those working on reduced hours due to coronavirus or on furlough, the Government confirmed.