PAYE tax question - mid year personal allowance

[S1MMA]

hi all,

I have a question on the tax free personal allowance. Lets say you are a student and start a work placement half way through the tax year. So you have no income prior to this. You start in August 2016. Your first pay is September 2016. You earn £18,500. This is above the current tax free allowance of £11k per tax year (on a monthly snapshot basis).

Question is: how does HMRC deal with this in terms of income tax. Do they:

(a) accrue your tax free allowance which you didn't utilise from April to September, effectively not taking any income tax from you until you earn more than £11k (which you won't do in the 16/17 tax year)?

Or

(b) do they take an income tax deduction based on a monthly allocation of the tax free personal allowance (£11,000 / 12) and then give you a rebate after the tax year has ended?

I always thought it would be (b).

cheers for the responses!

[edc]

If you fill out the new starter check list (P46) and tick option A "first job since April" then they can make a one off adjustment to account for this situation. The same would apply via a P45. As an example you may have been out of work from April to August, work only 2 weeks in August but receive net pay of more than the usual net pay amount for a full month due to the tax allowance recalculation.

[S1MMA]

Hi edc,

Ok so would that one off adjustment only affect your first month's income tax contribution? Or would it affect all your pay up to the tax free allowance in that tax year (i.e. you would pay no tax in 16/17 because you will earn less than £11,000 in that tax year)?