7.5 Year bonus destroyed by PAYE

pennanbeach

Received 7.5 year bonus today and was dismayed to see the £5,000 total reduced to just over £2,600 after deductions of £1,694 for PAYE, £230 for NI and £381 for student loan. One of my colleagues got his at the end of last year as was only charged £1,000 PAYE. Submitted a JPAC querey and was told:

Tax is deducted by JPA and is paid throughout the year instead of in one lump sum. Usually when salary is paid, tax is deducted at a relatively consistent rate. A large taxable credit (such as a CB or FRI) can have the effect of distorting taxable income in a single month - thereby distorting what appears to be the taxable annual income for an individual.

Where a Serviceperson receives an unusually large payment in a single month, it is possible that part of the payment pushes the anticipated ANNUAL income above the 40% Income Tax threshold and is taxed accordingly.

When earnings return to normal consistent levels in subsequent months, JPA balances the taxable income and much of the tax paid at 40%, due to the spike in earnings, will be reassessed and taxed at 20% - thus it appears that less tax is payable in subsequent months.

Over the taxable year, Income Tax will be deducted based upon the amount of taxable income although this may appear distorted at times due the payment of large taxable credits.

Perhaps I'm misreading this, but it seems to say 'it'll work itself out over the course of the year'. I'm not very happy about just hoping that I pay less in tax in subsequent months.

Because my tax code for this year is now 747l, I thought this meant the pre-tax amount had increased to £7470, so surely I would pay the same tax, if not less than my friend who got his last year?

Also, am I obliged to pay student loan from this? There is an automatic deduction from my pay each month towards this, if I had the option, I would prefer not to make any extra payment over and above my monthly.

I realise that this is a bonus and there is an element of being happy with what you get, but expecting £3,700 and getting £2,600 is a bit disappointing.

Would be very grateful to anyone who could give me any additional info about this.

atnoble32

You've been hit by the new HMRC policy,(seen it in the paper a few months ago) however you can claim it back, best you speak to them for the info. It will catch a lot of people out.

Alias_Omega

Dont worry,

It will work it all out at the end of the tax year. Your P60 will reflect this when issued.

Fergie76

Alias_Omega wrote: »

Dont worry,

It will work it all out at the end of the tax year. Your P60 will reflect this when issued.

Given that the new tax year has just begun, I doubt s/he really wants to wait 12 months to find out.

Lokolo

Fergie76 wrote: »

Given that the new tax year has just begun, I doubt s/he really wants to wait 12 months to find out.

She'll find out in the next few months as pay will automatically adjust itself.

I wouldn't mind knowing what time in the year her friend got her bonus, as I suspect it was quite near the end of the tax year.

antrobus

JPAC are essentially correct if perhaps unhelpful.

It's all because PAYE is calculated on a cummulative basis, so if you get a large one-off payment early in the tax year, you can (temporarily) end up paying more tax that you need to.

I'm guessing that OP is on about £20k basic. So I would expect everything to be sorted out by month 3, or June if you prefer. Based on my rough calculations, I would expect that OP should be due PAYE refunds in both the Month 2 and Month 3 payrolls, which coupled with the fact that they won't be paying the 'normal' £200 or so PAYE due on basic pay, means that they'll get the extra £694 back in the next couple of months.

pennanbeach

Thanks for everyones help and advice, good to know that it should work itself out, but will be keeping a close eye on future payslips. I got that JPAC reply very quickly, about 40 mins, and it looked a little like a cut&paste answer to me which is why I decided to post here.

Lokolo, My friend got his bonus in July of last year.

atnoble32, thanks for the info, will give them a call and try and dig up more info on this new policy.

molerat

The student loan refund is only available if your gross pay for the year will be less than £15K.

If your income through PAYE varies over the year

If you get paid the same each week or month, you will make your repayments in equal instalments. If the amount you earn changes during the year, the amount you repay will be based on each individual PAYE period.
For example, you might earn £1,500 in January and repay £22. If you were paid £1,600 in the following month, your repayment for February would be £31. In both cases you would repay nine per cent of the amount you earned over the monthly threshold of £1,250.
If your total earnings for a particular tax year are not more than £15,000, you can apply for a refund of any PAYE repayments you made during that tax year. If your total earnings are more than £15,000, you won’t qualify for a refund – even if your PAYE income has varied.

If you are on around £20K then the tax will have sorted itself in your Jun pay. If the bonus was paid in June or later no 40% tax would have been charged. It is just the way the system works by using monthly periods. Getting a bonus in Month 1 is usually the worst time.

HisDoris

I might be wrong in saying this but going to say it anyways!

You said 'I realise that this is a bonus and there is an element of being happy with what you get, but expecting £3,700 and getting £2,600 is a bit disappointing.'

I'm assuming this is the 'bonus' you can take from any time after your '4 year point of service'? ... This is not a 'bonus' as such - it comes out of your pension! So you have full right to try and get all you expect from it - it's your money and will affect your pension in the future.

Sorry just needed to rant that a bit there!

Fergie76

HisDoris wrote: »

I might be wrong in saying this but going to say it anyways!

You said 'I realise that this is a bonus and there is an element of being happy with what you get, but expecting £3,700 and getting £2,600 is a bit disappointing.'

I'm assuming this is the 'bonus' you can take from any time after your '4 year point of service'? ... This is not a 'bonus' as such - it comes out of your pension! So you have full right to try and get all you expect from it - it's your money and will affect your pension in the future.

Sorry just needed to rant that a bit there!

You are correct.











You are talking complete bollox!

What about all the people that don't complete 22 years Service, but serve enough to get their bonus? What pension pot does that come out off?

Trying_to_be_good

As Fergie76 says, it's not pension-related, it's a bonus, i.e. additional income when you meet the conditions for the bonus to be paid - complete red herring!