Tax on Bonus Payment

benthefreak

Hi Guys, Thanks in advance for your help.

I Have a question regarding what tax should be paid on bonuses, I have had a look around on the internet and everything seems to contradict what iv actually paid!

My Taxable Pay as of March this year is showing at aprox £19,500 - which to my understanding is nowhere near the 40% tax bracket and I belive my wages are therefore taxed at 20% (Tax Code 647L). My understanding from what ive read online is that any Bonus payment is basically an extension to your salary and providing it doesnt take you over the tax bracket, it is taxed at your normal rate...

However, having been told I would get a bonus of about £585 a month or so ago, I have found that I was only paid £350 of it, Looking at the calculator this appears to be 60% of what was agreed and I have therefore assumed I have been charged 40% tax?

Just another thing to add which may or may not influence your response. Whilst this is the first time I have ever qualified for a bonus, I beleive that last year, other employees got this paid on the same day as their salary (and showed on the same payslip I presume). This year, they have paid the bonus separatly to my salary - Could this have something to do with the fact that I have therefore received 13 salary payments this year instead of 12?

Kind Regards

Ben

Any

I get the feeling as they paid it separately from payroll that they forgot to process it and will process it through payslip next month-so they gave approximate amount now, kind of like an advance on next wage where it will be fully processed (and any under/overpayment settled).
Don't forget about NI on the pay too-another 11% on top of 20% tax.

taxing

Sorry, I am stumped.

The payment should have been taxed at 31% (being 20% income tax and 11% class 1 national insurance) so £181 in all leaving you £404.

A net £350 would equate to a gross of £507. (507 at 31% = 157 so net is £350).

What does the payslip (or letter or notice) actually say - do you have a breakdown?

BTW - this isn't the second job in this tax year is it - in other words is the £19000 from this job for the whole tax year? If it's for part of the year only, then your combined earnings from this and the earlier job may be pushing you in to top tax bracket. Wild guess.

Regards.

benthefreak

Thanks for the response peeps,

With reference to first response, I dont think they forgot to pay with the payroll as they comunicated that it would be paid separatly a few weeks before March Payday. they didnt give any indication that it would have tax implimentations though! Also, I work for a large corporate company that to my knowledge has paid bonuses on the same date for many many years - I cant say I have ever heard of any of my colleagues being paid incorrectly in the past!

Having said that though, your comments regarding the advance are interesting, I wonder if they have done it to avoid tax in the current financial year? and yes, I hadnt taken into consideration NI contributions - but as per the second reply, this doesnt account for about £50's worth of deductions.


Re second reply: no I dont beleive thats the case, this is my only job/income this year and has been the only one for about 3 years.

The letter was given to me in Late Jan/Early Feb, it isnt dated but basically says:

Dear Ben

Well done on your performance in 2010 blah blah blah... <details of a 3.00% payrise starting next month>
To recognise your level of performance in 2010 I am please to inform you that you have been awarded a bonus.

Your Bonus is: £585.92
Your Bonus will be paid to you as cash in your March pay.

It then goes on to tell me how my 3.00% pay rise has been calculated.

I havn't actually been given any kind of payslip showing tax deductions etc at the moment, it only got paid today so id expect to receive a payslip in the next few days. I supppose there is a posibility it will be included in Aprils payslip if what is suggested above is correct.

Any

Tax must be paid on any income. Even if they gave it to you in goods.
They said it WILL be paid in March's pay-can't see why otherwise they wouldn't process it through payslip, then forgetness or as you point out paying tax now.
Just call ur payroll department and I am sure they will explain it.
If the pay was exactly £350 then it defo sounds like an advance on the actual payment.

CLAPTON

what's your total pay to date
and what's your total tax to date
do you contribute to a company pension

benthefreak

CLAPTON wrote: »

what's your total pay to date
and what's your total tax to date
do you contribute to a company pension

Year to date shows as:

Pay: £19200.78
Tax: £2544.20
NI: 1483.75

And yes I contributeto pension - 2% I beleive.
I also pay towards a student loan, would that make a difference?

Oh, and by the way, to clarify something mentioned earlier, the payment was actually £351.27 - the earlier figure was just me being lazy and rounding!

anniecave

Do you pay to student loans through your salary? Isn't that an extra 9% or similar? So if pension is 2% that would be approx 11% extra.

benthefreak

anniecave wrote: »

Do you pay to student loans through your salary? Isn't that an extra 9% or similar? So if pension is 2% that would be approx 11% extra.

Yep the student loan it comes out automatically each month, if i recall correctly its 9% of anything earned over a certain level (13k?) - I suspse, as much as i dont like it, it all kind of adds up now!:(

20% Tax
11% NI Conts
9%? Student loan
2% pension conts

---

~ 42%

Thanks for all your help guys and when i get my payslip ill be sure to post exact % details!

Any

Looks like problem solved then:-) but pls do give us an update just to confirm.

Mikeyorks

benthefreak wrote: »

Yep the student loan it comes out automatically each month, if i recall correctly its 9% of anything earned over a certain level (13k?)

It's a £15k threshold. But it's allocated as a £1250 'allowance' each month - before you pay 9%.

Your salary took up the 'allowance' - therefore the bonus attracted the full 9% on everything.