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I was promoted a few months ago and as a result my salary has increased to £59,400. However, prior to accepting the offer I calculated my expected salary via https://www.thesalarycalculator.co.uk/salary.php - After entering my details (annual salary of £59,400 / tax code: 1151L / 5% salary sacrifice pension on gross pay), it showed that I should expect to receive £3,405 per month after tax/NI.

However, all of the payslips I have received since starting my new role have been quite a way-off this. I have been getting paid £3,524. No salary calculators I have used can even get close to this calculation. Basically, I am paying £119 less in tax than the salary calculators expect me to. This is fine by me, assuming it is correct... but I don't think it is, despite my employer assuring me that it is.

What's going on here?

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Income tax is calculated on an annual basis, from April 6th to April 5th the next year (a so-called "tax year"), but withheld from each payslip ("PAYE") so you don't have to pay it all at the end of the year.

As a result, if your pay changes mid-year sometimes the month by month deductions won't be the same as if you had been paid the same amount each month. For example, in your case, your previous salary after taking off pension contributions was less than the higher-rate tax threshold of £50,000. So you have some "unused" basic-rate band (i.e. the amount up to the higher-rate threshold) from the first months of the tax year. That's now being applied to some of your pay that you'd otherwise be paying higher-rate tax on.

As of your April pay, you should expect your take-home pay to be consistent with salary calculators, assuming that any other items like the pension are properly captured by those calculators.

It's also possible that your take-home pay will drop before April if your total YTD pay goes above an average of £4166/month (i.e. £50K/year) before then, as at that point your unused basic-rate band will be used up, so don't budget for it to continue until then unless you've done the calculations carefully.

Finally, although this answer assumes the standard numbers for the 2019-20 tax year of a tax-free allowance of £12,500 and hence a higher-rate tax threshold of £50,000, your tax code of 1151L as opposed to 1250L means the exact numbers are actually slightly different for you. But the difference in tax is in about the right ball park for it being unused basic-rate band, so that is probably the main or only explanation for the discrepancy.

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    Nice work, out of curiosity I played with the calculator and was stumped. +1 to you and the OP. – Pete B. Jan 28 at 14:18
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    @PeteB it's basic stuff if you know the UK system :-) It's all setup so most people won't need a tax return even in situations like this. – GS - Apologise to Monica Jan 28 at 14:19
  • Thanks for the answer @GS-ApologisetoMonica - You are correct, as mentioned in my above comment my salary used to be £46,557! Looking back at old e-mails with the HR department, they did mention that the salary calculators I quoted didn't account for my YTD earnings, which is true... They just didn't explain the fact that I have an unused higher-rate allowance like you said! I did ask the question "Will I be paid less come 20/21 tax year?" their response: "No" - They're wrong! Thanks again for the answer, it has been bugging me for a few months now! – jto Jan 28 at 15:12
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    Well, they're right in that they will be emitting the same amount of money next tax year, but wrong in that you will not be receiving the same amount money next tax year... – AakashM Jan 28 at 16:29
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    @jto you won't be paid less next year, you'll be paid more because you'll have the raise for the entire year. You will be paid less per month after taxes than you are this month, though. – Kat Jan 28 at 23:04
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The goal of the income tax calculation is that you should pay a fair amount every month, so that at the end of the tax year you don’t owe tax and are not owed tax.

For the calculation say at the end of the fourth month of the year: We guess that you have the same income in month five to 12. From this we calculate your estimated income during the year. Then we calculate what tax you would pay per year, and what percentage of the estimated income that tax is, say X%.

Now we take your actual income in the first four months, and X% of that is the tax to pay in these four months. We subtract what you already paid in the first three months, and the difference is what you owe for month four.

And with a bit of mathematics you can find that if you keep getting the same monthly income, you will pay the same tax for the remaining months, and at the end of the year you have paid exactly what you owe.

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