Help Needed - Bonus to be given instead of wages

edfica

Hello,

I currently earn £18,000pa (£1195.35pm) and have been given a pay raise which effectively increases my wages to £20,700pa (£1350pm).

However this will be paid by me taking a basic of £12,000 (£850pm) and receiving a monthly bonus of £500pm net of tax on the bonus.

Does anyone know how I calculate how much tax I will pay on the bonus for it to arrive at £500 net?

I believe it is £150pm in tax. (is this correct?)

I am worried I will not be paying enough tax on my total income of £20,700pa compared to if I was paid £20,700 the normal way. (or is my total income actually £19,500)

Will get a bill later down the line to bring my taxes up to £4,492.80pa. (or £4,120.80 @ £19500)

Please help I am very confused.

Thank you

Calucations, (is this correct?)

Earnings: £12,000 + Bonus £7,500

---

Salary

---

Tax

---

Total
Annual----10,204.20----1,795.80

---

12,000.00
Monthly----850.35

---

149.65

---

1,000.00

---

Bonus

---

Tax

---

Total
Annual

---

6,003.00----1500.75----7,503.75
Monthly

---

500.25

---

125.06

---

625.31

Totals

---

Salary

---

Tax

---

Total
Annual

---

16,207.20----3,296.55--19,503.75
Monthly----1,350.60

---

274.71---1,625.31


Earnings : £20700 (Normal way)

---

Salary

---

Tax

---

Total
Annual

---

16,207.20---4492.8

---

20,700.00
Monthly

---

1,350.60----374.40

---

1,725.00

MrRedundant

I think your Tax and NI calculations are wrong.

MrRedundant

It is as simple as saying you are earning;

Basic Net PM £850.35
Bonus Net PM £500.25

Total Net PM £1350.60 which comes out at £20,700.

The upshot is your earning the same each month; I am guessing though by doing it this way they stand to gain on areas such as holiday pay, pension contributions, sick pay.

Probably made the bonus conditional as well.

Tbh I see no incentive for you to change.

I suspect you included your allowances on both amounts.

zygurat789

Is this bonus of £500 to be received net or merely net of tax?

edfica

Hi, Thank you for all your comments.

I will recieve £1350 every month as my wages.

I don't think I will be penalised with holiday/sick pay etc... the reason why a wage with a monthly bonus was proposed is so my wages can be increased without the business taking a increase in costs with the employer NI contributions. With 12,000 basis the NI contribuation will go down, so that saving can be passed on to me via a bonus. We are small business im 1 of 2 employees so we can't afford to increase costs.

What i don't understand is, will I be paying enough tax on the £1350 I will recieve? I don't want to be hit down the line with a tax bill.

MrRedundant

A bonus is still subject to NI.

Suewre

It doesn't make a difference if a payment is called salary or bonus (or overtime or commission etc) it is still subject to tax and nic in the same way. So changing the name of the payment from salary to bonus will not result in a saving to the company of ers nics.

For you to receive a net bonus of £500, assuming no pension or student loan deductions, the £500 would be 69% of the gross (11% ees nics and 20% tax - your allowances will be taken up with your salary), so your employers would be paying approx £144.93 tax, and £79.71 ees nics, meaning the total gross for a net payment of £500 would be approx £724.64. Then there are ers nic payable on this, which are currently 12.8%, so a further cost to the company of approx £92.75. Giving a total cost to the company of £817.39 for you to receive a net additional payment of £500.

zygurat789

An employer may not do what you appear to be suggesting. It will really upset the guys at HMRC and your employer will end up with an investigation , trust me, he does not want that.

Freddie_Snowbits

Freddies First Boss in 1978.

Comapny has a subsidised shop, sports club and a pensions scheme. If I was any of you I would not put a penny into the pension, because when you retire, they'll be nothing left in the pot.

It also ran a closed shop, where everyone was a member of a union. Today I run my own business, and am still a member of the UNION

edfica

zygurat789 wrote: »

An employer may not do what you appear to be suggesting. It will really upset the guys at HMRC and your employer will end up with an investigation , trust me, he does not want that.

Thank you all for your comments.

Hi using 'Suewre' figures my employer will only be paying less NI of £4.87pa and I will pay £1.32pa less tax so the whole thing is a bit pointless. Am I doing this right?

Employer outgoings : £20700 (Normal way)

---

Salary

---

NI

---

Total Cost
Annual

---

20,700.00--1,917.44---22,617.44
Monthly

---

1,725.00---159.79

---

1,884.79

Employer outgoings: £12,000 + Bonus £8695.68 (£20,695.68)

---

Salary

---

NI

---

Total
Annual

---

12,000.00---803.84----12,803.84
Monthly----1,000.00---66.99

---

1,066.99

---

Bonus

---

NI

---

Total Cost
Annual

---

8,695.68----1,113.05---9,808.73
Monthly----724.64

---

92.75

---

817.39

Salary + Bonus
Annual

---

20,695.68--1,916.89---22,612.57
Monthly

---

1,724.64---159.74

---

1,884.38

Difference in employer total Expenditure
22,617.44 - 22,612.57 = £4.87pa
1,884.79 - 1,884.38 = £0.41pw

---

My Income : £20700 (Normal way)

---

Salary

---

Tax

---

Total
Annual

---

16,207.20--4492.8----20,700.00
Monthly

---

1,350.60---374.40----1,725.00

My Income: £12,000 + Bonus £8695.68 (£20,695.68)

---

Salary

---

Tax

---

Total
Annual

---

10,204.20---1,795.80---12,000.00
Monthly----850.35

---

149.65

---

1,000.00

---

Bonus

---

Tax

---

Total
Annual----6,000.00---2695.68----8,695.68
Monthly---500.00

---

224.64

---

724.64

Total income
Annual

---

16,204.20---4,491.48----20,695.68
Monthly 1,350.35----374.29

---

1,724.64

Difference my total tax paid
4492.8 - 4,491.48 = £1.32pa
374.40 - 374.29 = £0.11pw

zygurat789

Yes it doesn't matter how you calculate your effective gross the tax and NI will always be the same.. The taxman has been around for a long time, he's seen it all before, closed the loopholes and now sits back and laughs. He has the law on his side so it's (supposed0 to be fair to everyone.