Annual Bonus Tax

Maynard1

My monthly Gross Salary is £2200. For the year of 2010 - 2011 I earned a bonus of £3000, which was paid to me with my April salary.

From what I understand, the total of £5200 has been viewed as my taxable salary, which means I have paid £1247 total tax, made up of £583 at 20% and £664 at 40%. I have also paid NI of £385.

In May my monthly gross will return to £2200 and I expect I will be taxed at 20% only i.e. £315 tax and £191 NI.

Could someone confirm if this is correct? If not, could someone provide an explanation of how this should be calculated.

noh

No.
I calculate you will get a tax refund of around £16 in your May salary.
Your NI calculation is correct.

Edit:-
Clapton below is correct your tax will be around £48 in your May salary.


This is because tax is calculated on a cumulative basis.

Your April salary was the first of the year so in the tax calculation it was assumed you would earn 12 x that amount in the year.

Your May salary is the second of the year and the tax rates used assume your annual salary will be 6 x the addition of thr April and May totals.

HMRC manual tax tables are here if you want to work it out yourself.

http://www.hmrc.gov.uk/taxtables/tables-b-d.pdf

CLAPTON

no it doesn't work like that

tax (unlike NI) is a cumulative tax so that your tax depends upon your total income for the year.

this means that if you get a big bonus in April, you are taxed much too much
however that is refunded in subsequent months

so in May you tax will be about £48 only

NI however is a monthly tax and so yes you will pay 191

Maynard1

Thanks to you both for your prompt response, though it seems there is a difference of opinion.

Could either of you, or anyone, expand further on how the tax should have been calculated in both April and in May?

I appreciate there are certain salary calculators online but they don't offer any explanation behind the calculations.

Thank you.

noh

No difference of opinion.
I have corrected my post. I made an error in my calculation.
Clapton is correct.

CLAPTON

well like this

annual tax free allowance is 7475 i.e. that's 7475/12 per month or 613 approx
20% band is 35,000 per annum or 35000/12 = 2,916 per month approx


1st month total income 5200
so first 613 is tax free
next 2,916 is taxed at 20% i.e. £583.3
the remainder of 1660.4 is taxed at 40% i.e. 664
so total tax paid is 1247


2nd month
total pay to date is 5200+ 2200 = 7,400
you get two lots of 623 tax free i.e. 1,245 of the 7200 is tax free leaving 6,154 to be taxed
then you get two lots of 2,916 taxed at 20% i.e. 5,833 at 20% i.e. tax is 1,166
that leaves 320 ( =7,400 - 1,245- 5833) to be taxed at 40% i.e. tax is 128

so total tax due after two months is 1,295
however you have already paid 1,247 in month 1 so you have £ 47 to pay.

so, when we say that tax is an cumulative tax, it works by adding up your pay to date, then working out how much tax is due to date, then subtracting how much you have already paid
so although you pay too much in the month with the bonus the payroll system automatically gets the right answer in the end.


tax isn't taxing is it?

Maynard1

Much appreciated that makes perfect sense, thankyou.

One final question just to satisfy my curiosity. I understand tax being cumulative but from my limited understanding, it can also be non-cumulative. What is the factor that determines this for an individual or have I picked this up wrong?

Thanks again.

jem16

seanxb wrote: »

Muit can also be non-cumulative. What is the factor that determines this for an individual or have I picked this up wrong?

Thanks again.

Non-cumulative can be used as an emergency code when the individual's circumstances are not known after moving jobs. It can also be used in the case of a tax code change where using a cumulative tax code would give rise to a large tax deduction in one month.