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    • gomurchu
    • By gomurchu 16th Mar 17, 9:51 AM
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    gomurchu
    Bonus Payment March or April?
    • #1
    • 16th Mar 17, 9:51 AM
    Bonus Payment March or April? 16th Mar 17 at 9:51 AM
    Hi looking some help here.
    I am due to receive a bonus of 8k in March wages current salary 42k with pension payments of 1700 per year and personal allowance of 11k.
    This will take me into the higher rate tax band. Given the personal allowance increase to 11.5k and increase of the tax bracket to 33.5k in 2017/2018 would I be better off asking for the payment to be deferred until April or will it all balance out?
    Or is there any other suggestions that would reduce my tax exposure other than increasing pension payment?

    Any help would be appreciated.
Page 1
    • Dazed and confused
    • By Dazed and confused 16th Mar 17, 10:06 AM
    • 1,282 Posts
    • 517 Thanks
    Dazed and confused
    • #2
    • 16th Mar 17, 10:06 AM
    • #2
    • 16th Mar 17, 10:06 AM
    Gift aid, works in similar way to pension relief but you get an extra warm feeling as well :-)

    Although the personal allowance and basic rate band have increased you would need to factor in pay rise and what if employer made another bonus this time next year but insisted it was paid in March 2018. Could be catastrophic if you opt for April for this one.
    • Spidernick
    • By Spidernick 16th Mar 17, 11:04 AM
    • 2,323 Posts
    • 4,186 Thanks
    Spidernick
    • #3
    • 16th Mar 17, 11:04 AM
    • #3
    • 16th Mar 17, 11:04 AM
    Gift aid, works in similar way to pension relief but you get an extra warm feeling as well :-)

    Although the personal allowance and basic rate band have increased you would need to factor in pay rise and what if employer made another bonus this time next year but insisted it was paid in March 2018. Could be catastrophic if you opt for April for this one.
    Originally posted by Dazed and confused
    I'd largely agree with this, but would hardly call a decent bonus 'catastrophic' (a 'first-world problem' more like!).

    OP,

    Do you currently claim Child Benefit? If so, it might be worth taking the bonus this month (you must be pretty close to the March payroll deadline, if not already passed) to stay under the 50K taxable income (depending on any other income you have) and avoid the claw back for 2016/17 and you can then review your options for 2017/18 once your overall remuneration for that year is known and think about further pension contributions then (look at if you have the option to pay part of any bonus into the pension).
    'I want to die peacefully in my sleep, like my father. Not screaming and terrified like his passengers.' (Bob Monkhouse).

    Sky? Believe in better.

    Note: win, draw or lose (not 'loose' - opposite of tight!)
    • vacheron
    • By vacheron 16th Mar 17, 12:24 PM
    • 667 Posts
    • 538 Thanks
    vacheron
    • #4
    • 16th Mar 17, 12:24 PM
    • #4
    • 16th Mar 17, 12:24 PM
    We also get a bonus in March. I elect for it all to be paid into my pension, but it is not as much as yours so it is an easier decision for me to make. It also depends how old you are and therefore how long it will be until you can get your hands on it again.

    As Spidernick said, Child Benefit will start getting clawed back at 50k, and as soon as you are 1 above 43K any Marriage Allowance will be completely removed, leaving you potentially a further 220 worse off. Any non-ISA savings interest between 500 and 1000 will also become subject to tax.

    These may not apply, but should all be considered if applicable.

    Could you ask for 2699 now and the rest next year where you will have 2K more to play with before becoming a high rate taxpayer?
    Last edited by vacheron; 16-03-2017 at 12:28 PM.
    The rich buy assets.
    The poor only have expenses.
    The middle class buy liabilities they think are assets.
    Robert T. Kiyosaki
    • Dazed and confused
    • By Dazed and confused 16th Mar 17, 12:31 PM
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    Dazed and confused
    • #5
    • 16th Mar 17, 12:31 PM
    • #5
    • 16th Mar 17, 12:31 PM
    The limit for marriage allowance isn't 43000 though it's whether you pay higher rate tax or not. Op could take bonus and pay it all into a sipp and remain a basic rate payer (assuming he's not got other income not previously mentioned) and still benefit from marriage allowance.

    Same goes for the personal savings allowance limits afaik.
    • vacheron
    • By vacheron 16th Mar 17, 1:33 PM
    • 667 Posts
    • 538 Thanks
    vacheron
    • #6
    • 16th Mar 17, 1:33 PM
    • #6
    • 16th Mar 17, 1:33 PM
    The limit for marriage allowance isn't 43000 though it's whether you pay higher rate tax or not. Op could take bonus and pay it all into a sipp and remain a basic rate payer (assuming he's not got other income not previously mentioned) and still benefit from marriage allowance.

    Same goes for the personal savings allowance limits afaik.
    Originally posted by Dazed and confused
    I agree the SIPP (pension) route would be fine, but I've found confirming your eligibility in the eyes of HMRC to be a minefield from personal experience.

    Because they use adjusted net income it is possible to not pay a penny in high rate tax and still have your marriage allowance removed.
    Their site also said "must not pay tax at the higher rate" back when I first applied, but they have now changed this to "must earn less than 43,000".

    So assuming a basic 2016-17 taxpayer with marriage allowance (1210) code,
    • This should allow you to earn 44100 with no high rate tax to pay... however if your total income exceeds 43,000 your marriage allowance will be removed!
    • Earn 42,750 (250 under the limit) plus 400 interest: = No high rate tax to pay but marriage allowance will be removed.
    • Earn 42,750 (250 under the limit) plus 1500 in dividends: = No high rate tax to pay but marriage allowance will be removed.

    When I checked, HMRC even had had the conditions to calculate adjusted net income stated incorrectly on their website saying that the savings and dividend allowances could be deducted, so you could have followed their rules (as I did at the time) and still come unstuck!

    They have admitted to me on the phone that there are numerous cases around the tax threshold which have seen many people fall into problems.

    In the end, only pension contributions and charitable giving seem to be allowed to reduce your income.
    Last edited by vacheron; 16-03-2017 at 1:41 PM.
    The rich buy assets.
    The poor only have expenses.
    The middle class buy liabilities they think are assets.
    Robert T. Kiyosaki
    • Dazed and confused
    • By Dazed and confused 16th Mar 17, 1:57 PM
    • 1,282 Posts
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    Dazed and confused
    • #7
    • 16th Mar 17, 1:57 PM
    • #7
    • 16th Mar 17, 1:57 PM
    Adjusted net income isn't relevant marriage allowance or personal savings allowance.

    These are based on what rate of tax you pay so if earning 50000 and make sizeable pension/sipp contributions you can still have marriage allowance and get 1000 personal savings allowance if you don't pay higher rate tax.

    ANI is used for calculating the high income child benefit tax and for people earning over 100,000.

    Regrettably gov.uk does not go into sufficient detail and still maintains the fiction that only people with income less than 11000 can apply for marriage allowance when you could have double that and it still be beneficial to apply for it (albeit you'd have to have quite specific income types and amounts).
    • vacheron
    • By vacheron 16th Mar 17, 3:30 PM
    • 667 Posts
    • 538 Thanks
    vacheron
    • #8
    • 16th Mar 17, 3:30 PM
    • #8
    • 16th Mar 17, 3:30 PM
    I completely agree with what you are saying with regard to pension contributions (as I do the same thing myself).

    What has thrown many people (myself included) is this scenario.
    • Your salary is 200 under the high rate threshold.
    • You receive savings interest of 300 on which are legally allowed to pay no tax whether you are a high rate taxpayer or not.
    • You have therefore (legally) paid no tax at 40%.
    • Are you considered to be a 40% taxpayer?
    Every layman (myself included) who I have asked this to says they think they aren't.

    HMRC says they are.

    I'm sure HMRC are correct, however this has been very poorly communicated to the many people eligible for marriage allowance who are not tax experts, so I'm just warning the OP to tread carefully.
    The rich buy assets.
    The poor only have expenses.
    The middle class buy liabilities they think are assets.
    Robert T. Kiyosaki
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