Bonus payment will I end up paying 40% tax?

MoneySaverLog

I am due a bonus shortly which if it was paid every month would mean I'm liable for 40% tax band.

My question is will HMRC know it's a one off bonus payment or will they think this is my new monthly salary and end up charging me 40% tax

I'm normally only a basic rate tax payer but this one month my pay is going to be just under £4,000. Will I end up paying tax at 40% on anything over £3,539 tax code is standard 810L with the bonus and if I still do not earn more than the 40% tax starting rate at the end of the year will I get the overpayment back and would I have to claim it from HMRC ?

jamesd

HMRC wont' even know about he bonus payment until the end of the tax year unless your employer is participating in a new system that is being tested which does things monthly.

If you're on a standard cumulative tax code you won't end up paying higher rate tax unless your whole income for the year would take you into higher rate. There's no assumption that a one month change in pay will apply to the rest of the year.

Cumulative tax codes like 810L are set up for the whole year and don't divide the allowance into pieces for each month. Your payslips may have the word "cumulative" on them to make it even more clear that the code is being applied cumulatively.

There are some special purpose codes that do split the allowance into twelve monthly portions but that doesn't apply to just the standard L ending one.

CLAPTON

Well, you MAY temporally pay 40% tax but this depends upon your earnings for April and for May.

Whether it's tempory or not depends upon your income for the rest of the year which you haven't told us.

If however, you temporally go into 40% tax then it will be repaid in subsequent months;
However celebrate this as your NI will overall be less than otherwise.

AirlieBird

If your total pay in April and May is more than £7,080 when added together then you will pay 40% tax on any earnings above £7,080. However, as has been indicated above, you will get this back by paying less tax in the following months until your cumulative pay in the current tax year falls below the higher rate threshold (as calculated pro-rata for the year). By the end of the year your PAYE tax should be correct.

thenudeone

AirlieBird wrote: »

If your total pay in April and May is more than £7,080 when added together then you will pay 40% tax on any earnings above £7,080

To explain further how these numbers came about:
8100 tax code + 34370 basic rate band = 42470
42470 / 12 = 3539 per month
2 months = 7078

Daniel_Elkington

Bonuses count as income, whether they are paid via PAYE or whatever.

It is easier to add it up annually.

The first 8105 (the last number is always a 5) is tax free.

Then the next £34,370 you pay 20% tax on.

Anything above that you pay 40% tax on.

There is more but that is for your additional rate taxpayers and those earning more than £100K pa. Lucky devils!.

So if your salary, your bonuses and benefits in kind add up to more than 42475 then you pay 40% on anything above that amount.

PAYE works it out like the above calculations. If you add it up annually then you can ascertain whether additional tax is due. PAYE will sort it all out for you.

If you left your job or were unemployed for a period then you could reclaim your 20% if your annual total was under the 42475.

You could pay the bonus into your pension and not pay tax on it at all, unless you fancy buying a new kitchen or some nicer wheels for your car!