Help Needed for an Urgent Decision on Salary and Bonus

chrismann

Hi All,

I really need help with this one.:( My company is offering a pay for performance deal whereby we get (depending on performance) a bonus in June of £1560. Sounds fantastic right? Well it does mean we will have to lose our monthly supplement of £120-£150 per month.

I've been trying to calculate how much I would gain/lose by moving over to the new system as I have a choice to opt out. It's easy to figure out take home pay (using the salary calculator website) but I'm not sure what happens if I get all my bonus pay during one month. Will I get completely screwed over for tax?

My basic salary is £30450 (pre tax)

My options are to either have £120-£150 extra a month or to have £1560 in June.

What would you pick?

Bit of a brainteaser for you all!:beer:

chrismann

Can anybody help? I need to give an answer by COB tomorrow and I really don't know what to do.

McKneff

You'll probably get more answers tonight after people get in from work and had a meal.

Until then, be patient.:D

zzzLazyDaisy

As far as tax is concerned, it shouldn't make any difference, as your tax is worked out on your annual salary, so yes you will pay a chunk of tax when you get the lump sum, but no more, proportionately, than if you spread it through the year. The only difference would be if the bonus took you over the higher rate tax band, then you'd pay 40% on that bit. But that would only happen if the lump sum was larger than the total of the normal monthly sums, which would mean you were getting more anyway.

I hope that hasn't complicated things even more!

Mikeyorks

chrismann wrote: »

Bit of a brainteaser for you all!

Not in the slightest .......... it's your decision!

All depends on whether you want your company to save for you and give you a lump sum ..... or pay it to you monthly? The tax is immaterial as you will pay the same 20% rate whichever way.

As the mean figure of the monthly allowance is £135 ...... that has the edge (£1620 pa). If you have the discipline to put it on one side and do the saving yourself? If not - go for the slightly lower lump sum (but where you will probably pay a bit less NI overall)?

chrismann

I must admit I'm still a little confused. Maybe I need to clarify. If I stick with my current deal I get to following for the year (before tax):


January 2687.5
February 2687.5
March 2687.5
April 2687.5
May 2687.5
June 3037.5 (with hol bonus)
July 2687.5
August 2687.5
September 2687.5
October 2687.5
November 2687.5
December 2687.5

If I move to the new plan, I get this:


January 2537.5
February 2537.5
March 2537.5
April 2537.5
May 2537.5
June 4447.5 (with hol bonus and performance bonus)
July 2537.5
August 2537.5
September 2537.5
October 2537.5
November 2537.5
December 2537.5


Which is the better deal out of these two?

JasX

It makes no overall odds as far as tax is concerned, you'll be overtaxed during the month you get the boonus however as the tax you are due to pay is worked out annually you should be able to send off your payslips/P60 at the end of the year and tell them you may have paid too much tax and want some back.

annually is potentially more tax faff, especially as 12x£150 is £1800 so noticably more than £1560 AND without the tax faff

12x£120 is only £1440 however.

I see no advantage for anyone under the new system unless you're being assumed by your employer to be a bunch of airheads never able to save up for anything so would gain by being given it in a big lump and able to make a major purchase before it burns a hole in your pocket down the pub?

chrismann

Mikeyorks, sorry didn't see your post before I posted that.

chrismann

JasX wrote: »

It makes no overall odds as far as tax is concerned, you'll be overtaxed during the month you get the boonus however as the tax you are due to pay is worked out annually you should be able to send off your payslips/P60 at the end of the year and tell them you may have paid too much tax and want some back.

annually is potentially more tax faff, especially as 12x£150 is £1800 so noticably more than £1560 AND without the tax faff

12x£120 is only £1440 however.

I see no advantage for anyone under the new system unless you're being assumed by your employer to be a bunch of airheads never able to save up for anything so would gain by being given it in a big lump and able to make a major purchase before it burns a hole in your pocket down the pub?

Agreed... it is being sold as a move to performance related pay:)

chrismann

Thanks for the clarification people!

CLAPTON

OK

you have been offered
1560 bonus

or supplement of between 120 -150 per month which is a supplement of between 1440 and 1,800

is the bonus guarenteed
are the supplements guarenteed
are they pensionable
do you trust the company
do you have choice
is there a measureable criteria


as far as tax is concerned then your tax for the year depends upon your total earnings for the year and not how they are distributed over the year.

In any one month you may be more highly taxed than normal but in the subsequents months then the tax would be repaid. The total tax will always be the same no matter how the monthly amountsw vary.

In terms of NI, its possible that being paid the bonus might lead to slightly lower NI but that depends upn your normal salary