How do I calculate my deductions (income, national insurance, pension & student loan) for an income of 1 week?

Question

I left Company 1 on the 22nd of September, 2022

My salary at Company 1 was £41,000.
My P45 states that my:
Total pay to date (at the time) was: £19,741.76
Total tax to date (at the time) was: £2,690.40

I joined Company 2 on the 26th of September, 2022.

• My salary at Company 2 is now £55,000.
  
• I work 5 days a week, 09:00 until 17:30 (incl. unpaid hour lunchbreak).
  
• I was auto-enrolled on my pension scheme and contribute 5% on a relief at source basis
  
• My tax code is 1257L
• I get paid monthly at the end of the month but in this case, I need to work out my gross/ net pay for just 5 days.

Therefore I need to calculate what my gross pay is, what my deductions are and how much my net pay is after this.

I have attempted to work this out myself but I think I'm not in the right ballpark at all with my figures.

The calculation I used is as follows

---

Daily Gross Pay:
£55,000 / 260 working days in a year = £211.54

Gross Pay (September):
£211.54 * 5 = £1,057.69

Tax bands for that month:

• Basic rate: 20% for income between £12,570 and £50,270.
  
• Higher rate: 40% for income between £50,271 and £150,000.
  

Since my annual salary is £55,000, I should be taxed at the basic rate of 20% for the first £37,700 and at the higher rate of 40% for the remaining £17,300.

Given that I've already used up my personal allowance during my previous employment at Company 1, my September taxable income would be equal to my gross pay for the month:

So, to reiterate, my Taxable Income for September is:
£1,057.69.

If not, my Income Tax for September should be:
20% * £1,057.69 = £211.54

As for the National Insurance contributions for September, I'm not sure if I'm working this out correctly.

Checking the government website, I can see that the Employee National Insurance rates are: Category letter A:

• £123 to £242 (£533 to £1,048 a month) = 0%
• £242.01 to £967 (£1,048.01 to £4,189 a month) = 12%
• Over £967 a week (£4,189 a month) = 2%

Since my weekly earnings for September are £1,057.69, my NI contributions for September should be:

Weekly NI Contributions (September):
13.25% * (£1,057.69 - £242) = £108.07

(using 13.25 because we had a 1.25% increase during that period until November 2022)

In summary, for the month of September, I would pay:
Taxable Income: £1,057.69
Income Tax: £211.54
National Insurance: £108.07

But is this correct? I'm not even sure how to calculate my pension + student loan (Plan 2) in this case. Would really appreciate some help in working this out as I'm at my knowledge limit with this and would really like to be able to work this out on my own in the future!

The goal is for me to find out how to calculate this properly so that I could apply this to my future (monthly, not weekly) payslips, to ensure everything is fine.

Answer 1

You don't pay 20% on your whole income, you pay 20% on the portion that is above £12.570 (and 40% of what is above £50.271). Your personal allowance is not used up in the early months - otherwise your payout in April would be higher than in March. Instead, 1/12 of the personal allowance is attributed to each month (e.g. assuming you have a steady income). So also in those 5 days in September, you will only pay taxes on income above £242/week.

E.g. with your first company, you paid 20% taxes on £41.000-£12.570, e.g. a tax of £5.684 on £41.000, which is an effective taxrate of 13.86%. You actually got paid £19,741.76, and 13.86% of that is £2.737 (which is about what you actually paid in taxes).

For your new company, assuming you would have been employed the whole year, you would pay 20% taxes on £50.270-£12.570 (£7.538) and 40% on £55.000-£50.271 (£1.890), so a total tax of £9.428, which is an effective taxrate of 17,14%. Similarly, NI would be £4.618 (without the changes during the year), so a rate of 8,40%.

Your gross pay of £1,057.69 for the 5 days seems reasonable, although you can of course come up with small variations (e.g. 1/4 of a month's pay because you worked a whole week, or 5/22 of a month's pay because you worked 5 of the 22 work days of September 2022). On that amount, you apply the effective rates: 17,17% taxes would be £181,60, 8,60% NI would be £90,96, so you should expect £785 payout.

Your new company didn't acknowledge your P45, so they tax you as if you had earned the 55k the whole year, which is why you have the W1/M1 status. That means your rate is a bit higher than it would have to be, but you can get a tax refund for that overpayment. Including the first company, your average annual income was around £48.580 (5,5 month 41k and 6,5 month 55k), which would be £7.200 in taxes (14,82% effective rate) and £4.321 for NI (8,89%). Your £1.057,69 would then become £1.057,69-£156,75-£94,03=£806,91.

So your net earnings for those 5 days should probably be around £800 (before pension and student loans).

According to your comment, there was "no paper trail", e.g. the company probably paid it to you tax free for some valid or invalid reason (e.g. it might be tax evasion), and then there was probably also no pension/student loan contribution. I would check if it may appear in another month, and would actually try to get it "on paper", not the least to get employer pension match/pension benefits. If you are supposed to pay taxes on it yourself as additional income, you should be paid the gross value though.