The basic method for calculating tax on pay is as follows
- Apply the standard rate of tax (20%) on their gross pay up to their weekly cut-off point
- Apply the higher rate of tax (40%) on any gross pay above their weekly cut-off point
- Add the two amounts above
- Subtract the amount of their weekly tax credits
- If you pay your employees fortnightly or monthly, the same principles apply
- The cut-off points are shown on the employee tax credit cert (P2C)
Mark is your employee. The P2C you have received for Mark provides the following details:
Mark earns €800 per week. This is how his weekly tax is calculated:
|Taxed at 20%||€650||€130||Apply the standard rate of 20% up to the limit of the
cut-off point (€650) on the P2C.
|Taxed at 40%||€150||€60||Apply the higher rate of 40% to remainder of any gross pay
cut-off point (€800 – €650).
|Gross tax||€190||Add the amount of tax at the standard rate to the amount of tax at the higher rate.|
|Less tax credits||(€63.47)||Take away the tax credits as shown on the P2C.|
|Tax payable||€126.53||Net tax payable.|
This example does not take account of the income tax week or Mark’s previous income.
If the employee is on emergency tax because you have not received a P45 or tax credits cert (P2C) you should calculate their tax as follows:
|Weeks of employment||Tax credit||Cut-off point||Tax rate|
|Weeks 1 to 4||
|€650||Standard Rate (20%)|
|Weeks 5 to 8||No tax credit||€650||Standard Rate (20%)|
|Week 9 onward||No tax credit||No cut-off point||Higher Rate (40%)|
If you need any further information please email firstname.lastname@example.org or phone (01) 9104020.