New Tax Limits

paulsjoy

I am able to reduce my earnings to just below £35k for the 2011-2012 tax year, by contributing to my pension. However, I am fortunate enough to get a small bonus in June of this year which will take me over the £35k limit. Can anyone advise me of the following please?
1. Will I be taxed on the bonus at 40%? The bonus is paid separate to my normal salary.
2. If I increase my pension to allow for the bonus over the tax year, and at the end of the year would have been below £35k, will I be able to claim back the tax paid at 40% on the bonus?

Hope this makes sense and thanks

NiceGuyEddie_2

40% tax is due on taxable income in excess of £35k, not total income - as an example, assuming 1 job and a personal allowance of £7,475 (ie a tax code of 747L) then you will be taxed at 40% of income over 7,475 + 35,000 = £42,475.

Assuming you have no other income, you are not (nor will be based on your above information) a higher rate taxpayer

PParka

Don't forget your personal allowance as well.

You can earn £7,475 tax free in 2011-12. This means you can earn a total of £42,475 before paying 40% tax (£7,475+£35,000)

Will your bonus take you over £42,475 ??


EDIT: Too slow, NiceGuyEddie beat me to it!

paulsjoy

NiceGuyEddie wrote: »

40% tax is due on taxable income in excess of £35k, not total income - as an example, assuming 1 job and a personal allowance of £7,475 (ie a tax code of 747L) then you will be taxed at 40% of income over 7,475 + 35,000 = £42,475.

Assuming you have no other income, you are not (nor will be based on your above information) a higher rate taxpayer

Thanks for quick response. To be clearer I have taken into consideration the personal tax allowance of £7475. So my Gross income after pension contributions will be £42243 less allowance reducing to £34768, which is why I quoted £5k limit. So the bonus will in effect, I believe take me into the 40% bracket. On this basis, I think the bonus element will be taxed at 40% or am I getting this wrong?

molerat

The majority of the bonus will be due tax at 40%. By increasing your monthly pension payments you will be entitled to claim the tax back, I am assuming you make your own pension arrangements and not have them deducted from pay.

suso

Correct the majority of your bonus will be tax at 40%

232 will be taxed at the basic rate to take you up to the limit of 35000
then the remainder will be taxed at 40 %

paulsjoy

molerat wrote: »

The majority of the bonus will be due tax at 40%. By increasing your monthly pension payments you will be entitled to claim the tax back, I am assuming you make your own pension arrangements and not have them deducted from pay.

Thanks Molerat

My pension and additional pension payments are all deducted from pay. I could increase my pension payments to allow for the bonus at year end so If I am correct in understanding what you are saying, if I pay 40% tax in June on my bonus, but by year end I have earnt less than £42475 I will be able to claim the tax back?

molerat

If you increase your monthly pension payments to cover the bonus you will pay less tax each month as the payments are taken before tax. You will be hit with some 40% tax in the bonus payment month but it will be repaid by reduced tax in the following months until it is correct before the end of the year, there should be nothing to reclaim as PAYE will sort it.

paulsjoy

Guys

Thanks you all for your comments. Have clarified and made clearer for me.