Cost to company for paying a bonus

pappuyogs

Hi All,

Just seeking some clarifications. What would be the cost to a company if they pay a £5000 bonus to their employee? (NI, Tax etc). The employee is currently on £2083.33 gross per month. How much NI and Tax would the employee pay?

Rather weird question, but I am trying to find this out for someone I know who runs a small business.

Many thanks in advance!

System

The employee at £2083.33 per month = £25000 per year pays tax at 20% so 20% of £5000 = £1000

National Insurance is due at 11% so that's another £550

CarolynH

The cost to the company would be bonus plus 12.8% as ths is the level of Employers NI. The tax and NI the employee pays would be taken out of the bonus amount.

pappuyogs

Thanks people, does that mean that the employer has to pay an additional 12.8% of bonus. I was told that NI would be much lesser as the employer already pays NI on salary?

CLAPTON

a bonus is salary

m277

Remember any bonuses and NICs paid by the employer are deductible as an expense so they save in some tax there.

ceeforcat

Pam your employee's NI is not correct - NI is levied on monthly earnings up to £3337 per month. On the bonus, therefore, employee would pay NIC at 11% on £1254 of bonus and at 1% thereafter. If he is a director, however, the bonus would be 'spread' over the whole year and NI would be charged, in this case, on the full amount.

TaxGeek

Net cost to the employer would be:

£5,000 +NI at 12.8% = £5,640, less corporation tax relief as the bonus and NI is tax deductible. Assuming a tax rate of 21% means a tax saving of £1,184 and thus a net cost to the company of £4,456.

Depending on circumstances, paying the bonus directly into the employee's pension could reduce the cost to the company.

pappuyogs

Thats great! Thanks a ton people!

stamboy

TaxGeek wrote: »

Net cost to the employer would be:

£5,000 +NI at 12.8% = £5,640, less corporation tax relief as the bonus and NI is tax deductible. Assuming a tax rate of 21% means a tax saving of £1,184 and thus a net cost to the company of £4,456.

Depending on circumstances, paying the bonus directly into the employee's pension could reduce the cost to the company.

Could you expand on the last sentence please?

Thanks

stphnstevey

Avoids Employee and Employer NI and is tax deductible for the company - I believe?