Tax Query for Bonus Payment

crabbman2004_2

Hi All,

I am looking to receive a quarterly bonus of £13K payable in May this year. My understanding is that I will be taxed 40% on all of this as they will assume im on a salary of £120K+.

I am currently on £22000 and do not expect any other bonuses this year, my current tax code is 575T.

Could anyone tell me what sort of net figure I would be looking at taking home excluding my normal salary in May and what would happen regards to claiming the extra tax paid assuming i earn no more bonuses and finsih on a years earnings of £35K.

Any help would be appreciated. Many Thanks

nomoneytoday

The tax man will simply prorate the payment. Assuming you stay at the 20% bracket there will be a deduction of around £2600 on the £13000.

If there is a higher payment it will be returned through lower tax later in the year

crabbman2004_2

So from what you've said I should still only be taxed at 20% and Ill take home about 10400, is that right?

fengirl_2

No, the tax tables will assume you are going to earn an additional £13k every month for the rest of the tax year. You will therefore pay just under £7500 tax in May. The 40% tax will, as you have gathered be grdually refunded to you throughout the tax year until your salary gets down below the £37,400 higher rate limit.

paula7924

on £22000pa your normal take home pay in 09/10 would be £1413.41.

with the bonus paid in one lump sum in may you will take home £9253.66 including your normal salary - as you say the bonus will be taxed mostly at 40%. You will get some of the overpaid tax back every month on top of your normal take home pay as it averages out over the rest of the tax year. By the end you will end up having paid tax on the bonus at the basic tax rate rather than higher rate.

(net figures after national insurance contributions and tax)

this site is useful

http://www.listentotaxman.com/index.php?c=1&yr=2009&age=0&add=0&code=575T&pension=0&time=1&ingr=35000&vw%5B%5D=yr&vw%5B%5D=mth&vw%5B%5D=wk

crabbman2004_2

Thanks Paula, its starting to make sense now! Thanks for all your help

nomoneytoday

crabbman2004 wrote: »

So from what you've said I should still only be taxed at 20% and Ill take home about 10400, is that right?

Eventually yes - assuming that your other bonuses don't push you into the 40% bracket. However the best part of £5000 will be taken in May, and then your remaining tax will be prorated back throughout the rest of the tax year.

So in April they will have an average of £1833 income per month to tax, then in May in will be £7416 (1833 + 13000/2 ), then in June it will be £5555 (1833+13000+1833 /3), so by the year end it will work out as £10400 take home - assuming no pay rise or other bonus etc

Mikeyorks

Post #4 is the right logic but - most unusually - the wrong figure (I suspect the £7500 is intended to be the net from the £13k, not the tax deducted?).

Assuming code 575 is this year? And therefore assuming circa 619 (plus £440) for 09-10?

Total pay for the months of Apr / May £3666 + £13000 = £16666
Less 2/12th of £6190 PA = £1030
Taxable =£15636
£6234 @ 20% = £1247
£9402 @ 40% = £3761

Total tax due to end May = £5007
Less paid on salary in Apr = £264

Total tax due on salary + bonus in May £4743
(tax on £13k bonus circa £4480)

Previous comments regarding you gradually then getting the 40% tax back over ensuing months ... apply.

fengirl_2

Sorry my calculations were a bit out - it was a back of the envelope job.