Tax on bonus

Voodo_Magic_Man

Long time reader, first time poster!

I am currently a trainee solicitor in London. The firm that I am working for had a good 2009 and as a result we are all getting bonuses in our March pay. I'm getting a bonus of £8.5k but this will push me into the 40% tax bracket for that month only so I'm going to lose most of it.

This is my first job so I'm not sure but i will get some of that money back throughout the year when I go back to paying my usual tax or is it gone forever?

CLAPTON

unless your income for the year (starting april 2009) exceeds 43,875 (after pension payments have been deducted) then you won't pay 40% tax.

anamenottaken

Voodo_Magic_Man wrote: »

Long time reader, first time poster!

I am currently a trainee solicitor in London. The firm that I am working for had a good 2009 and as a result we are all getting bonuses in our March pay. I'm getting a bonus of £8.5k but this will push me into the 40% tax bracket for that month only so I'm going to lose most of it.

This is my first job so I'm not sure but i will get some of that money back throughout the year when I go back to paying my usual tax or is it gone forever?

Depending on your normal salary, the most they can take is 40% and my non-legal mind tells me that is not "most of it".

As it is so near the end of the tax year, I assume your March pay will be the last of this tax year. You will therefore have paid the correct amount of tax in the current year because your employer will have applied your correct tax code on your total pay in the year. Therefore, yes, it has "gone for ever".

John_Pierpoint

Do the calculations now and get your employer to put a chunk into a pension fund to get it our of your salary tax free?
Alternatively set up your own SIPP (Self Invested Private Pension) and claim back the higher rate part of the tax in your annual tax return.
(If you think it might be possible to work for a working lifetime and exceed the rate of inflation in a fiat currency called sterling")

RayWolfe

Voodo_Magic_Man wrote: »

but this will push me into the 40% tax bracket for that month only so I'm going to lose most of it.

I'm sure that with your highly trained mind, when you think about this, you will see what nonsense it is.
You will not lose most of it!




Meanwhile I hope you never have to represent me.

zygurat789

I find you all being very hard on someone who lacks your experience.
The way I read the OP is that if he is taxed at 40% he will lose all his bonus, this is because he thinks he will be taxed at 40% on everthing, a common mistake and forgiveable in someone who has just started work.
If your taxable income exceeds £43875 (after pension payments)then you will pay 40% only on the amount above £43875, the rest will be taxed at 20%.
If it is paid in march then the tax tables will calculate your deduction for march and next month is a new tax year and we all start again from zero.
A pension contribution equal to the amount by which your taxable income exceeds £43875 would appear to be cost effective. We aren't allowed to give advice here, but I and others would do it. Payment is best made before 5/4/2010.

jem16

zygurat789 wrote: »

The way I read the OP is that if he is taxed at 40% he will lose all his bonus, this is because he thinks he will be taxed at 40% on everthing, a common mistake and forgiveable in someone who has just started work.

Except he didn't say that. He said he would lose most of his bonus if he has to pay 40% tax on it. Even if he did have to pay 40% tax on his whole bonus he wouldn't lose most of it as he would still get 60% of it which can hardly be described as "most". This is what the previous posters have taken issue with not the complications or otherwise of the tax system.

A pension contribution equal to the amount by which your taxable income exceeds £43875 would appear to be cost effective. We aren't allowed to give advice here, but I and others would do it. Payment is best made before 5/4/2010.

The problem with that advice is that the OP may be making a pension payment that may not be necessary. We don't know his total income and we don't know if he is already making pension payments that may take him out of the 40% tax bracket anyway. We also don't know if he has made the common mistake of not taking his personal allowance into consideration before deciding he is a 40% tax payer.

More info is needed from the OP before anyone can advise correctly.

Mary_Hartnell

Sorry OP it looks like you will get better advice after you have read a tax primer, so you can then ask the questions the experts want to answer.
www.taxbookshop.com/bk-694-tax-for-dummies

I wonder what right a government has to charge tax that they payers don't understand.

KPR11

jem16 wrote: »

The problem with that advice is that the OP may be making a pension payment that may not be necessary. We don't know his total income and we don't know if he is already making pension payments that may take him out of the 40% tax bracket anyway.

You can always make a gift aid payment as well which though not necessary will be a great deed and help numerous people

Voodoo, UK has a progressive tax system. You have a personal allowance of £6,475 which means that the first £6,475pa is tax free and the rest is taxed at different rates so a certain amount of your salary will be taxed at 20% and then the rest at 40%. So effectively this is what is looks like:

£0 - £6,475 = 0% tax
£6,476 - £43,875 = 20% tax
£43,875+ = 40% tax

Plus don't forget that you will also play National Insurance on the salary and you will have to pay this on your bonus as well! (NIC works slighly differently to PAYE so without going in to too much detail, for the month that you get your bonus, it will be 0% on the first £476, and 11% on £477 to £3,656 and then 1% on £3,656+ - i.e. salary plus bonus less £3,657)

I can't tell you exact calculations without knowing your exact pay and tax code. However, you should take home at least £5k of your bonus plus whatever you take home as salary. Hope this helps.

KPR

CLAPTON

KPR11 wrote: »

You can always make a gift aid payment as well which though not necessary will be a great deed and help numerous people

Voodoo, UK has a progressive tax system. You have a personal allowance of £6,475 which means that the first £6,475pa is tax free and the rest is taxed at different rates so a certain amount of your salary will be taxed at 20% and then the rest at 40%. So effectively this is what is looks like:

£0 - £6,475 = 0% tax
£6,476 - £37,400 = 20% tax
£37,400+ = 40% tax

Plus don't forget that you will also play National Insurance on the salary and you will have to pay this on your bonus as well! (NIC works slighly differently to PAYE so without going in to too much detail, for the month that you get your bonus, it will be 11% on the first £3,657 and then 1% on the rest - i.e. salary plus bonus less £3,657)

I can't tell you exact calculations without knowing your exact pay and tax code. However, you should take home at least £5k of your bonus plus whatever you take home as salary. Hope this helps.

KPR

this isn't quite right

tax free is 6475
the next 37400 is taxed at 20% (ie. earnings between 6475 and 43,875)

and the amount over 43,875 is tax at 40%


and for NI
the first 476 per month is 0%
the next 3180 is charged at 11% unless your pension scheme is opted out of the second state pension when it is approx 9.4%)
and above earnings of 3656 per month then you pay 1%


If you are a graduate and paying student loan deduction you pay 9% of earnings over 1250 per month

KPR11

CLAPTON wrote: »

this isn't quite right

tax free is 6475
the next 37400 is taxed at 20% (ie. earnings between 6475 and 43,875)

and the amount over 43,875 is tax at 40%


and for NI
the first 476 per month is 0%
the next 3180 is charged at 11% unless your pension scheme is opted out of the second state pension when it is approx 9.4%)
and above earnings of 3656 per month then you pay 1%


If you are a graduate and paying student loan deduction you pay 9% of earnings over 1250 per month

Ooopps Clapton is quite right, I have not added the personal allowance to £34,700 - the upper limit for basic rate band is £43,875 :doh:

and I have been careless not to deduct the lower earning limit for NIC!

Thanks for the correction Clapton :T