Taxed 38% on Bonus

wantski

Hi,
I recently recieved a bonus of £5000 and was taxed about 38% leaving me £3155.94 in my pocket. My Tax code is 823L and I normally get taxed around the 17% mark on my monthly pay.

Is this the norm for bonuses?

Thanks for reading

lazer

wantski wrote: »

Hi,
I recently recieved a bonus of £5000 and was taxed about 38% leaving me £3155.94 in my pocket. My Tax code is 823L and I normally get taxed around the 17% mark on my monthly pay.

Is this the norm for bonuses?

Thanks for reading

Yes,

Basically the first £8,230 you earn is tax free
The next £34,370 is taxed at 20%
Anything above this is taxed at 40%

However this is on a cumulative basis, and monthly payroll assumes what you earn that month is what you earn all year, therefore any earnings over £3550 per month will be taxed at 40%

The minimum tax you will pay on any bonus (Assuming you earn more than 8,230) is 20%, plus National Insurance of 12% (subject to an upper limit).

Losing 38% tax appears reasonable.

chrisbur

wantski wrote: »

Hi,
I recently recieved a bonus of £5000 and was taxed about 38% leaving me £3155.94 in my pocket. My Tax code is 823L and I normally get taxed around the 17% mark on my monthly pay.

Is this the norm for bonuses?

Thanks for reading

It is impoosible to give any guidance on this as you have not given enough information. You may have gone into the 40% tax band you may not have, if you have some or all of it may or may not be repaid to you later, you may have gone into the lower NI band you may not have.
Assuming that you are on a cumulative code the tax due will have been worked out not on just that month's taxable earnings but on your total taxable earnings to date so that is the figure you need to give to check your tax due to date, from that would be deducted your tax tax paid so far to give your tax due for the month. NI is worked differently and to check this you need to advise if you are in a contracted out pension or not and give the total earnings for the month. Are you including any student loan repayments in this?

To get an answer you need to give for month the bonus paid the taxable gross and tax paid and also the gross and tax to date, and then the same details for the month before. I am assuming monthly paid but if weekly, four weekly or something else will need to know that also.

JimmyTheWig

wantski wrote: »

Hi,
I recently recieved a bonus of £5000 and was taxed about 38% leaving me £3155.94 in my pocket. My Tax code is 823L and I normally get taxed around the 17% mark on my monthly pay.

Is this the norm for bonuses?

Sounds like the tax has been slightly underpaid.

If your regular tax is 17% of your gross income, I make it that you salary is £44,200.
I.e. zero tax on the first £8,230.
20% tax on the next £34,370 = £6,874.
40% tax on the remaining £1600 = £640.
Total tax paid = £6,874 + £640 = £7,514 = 17% of £44,200.

That means that your basic salary uses up all of your tax-free allowance and so anything above this (e.g. a bonus) will be taxed at 40%.

lovinituk

JimmyTheWig wrote: »

Sounds like the tax has been slightly underpaid.

If your regular tax is 17% of your gross income, I make it that you salary is £44,200.
I.e. zero tax on the first £8,230.
20% tax on the next £34,370 = £6,874.
40% tax on the remaining £1600 = £640.
Total tax paid = £6,874 + £640 = £7,514 = 17% of £44,200.

That means that your basic salary uses up all of your tax-free allowance and so anything above this (e.g. a bonus) will be taxed at 40%.

How did you work that out without knowing how much tax they have paid to date?

ceeforcat

I don't wish to speak for Jimmy the Wig but I got the same answer using simple algebra - not as quickly though.

On the first 42000 of the op salary he paid 16.13% in tax. Fairly simple to work out how much more needs taxed at 40% to average out at 17%. Very clever though Jimmy!

lovinituk

ceeforcat wrote: »

I don't wish to speak for Jimmy the Wig but I got the same answer using simple algebra - not as quickly though.

On the first 42000 of the op salary he paid 16.13% in tax. Fairly simple to work out how much more needs taxed at 40% to average out at 17%. Very clever though Jimmy!

Thankyou! I knew I was being stupid! I just couldn't see it for looking

JimmyTheWig

lovinituk wrote: »

How did you work that out without knowing how much tax they have paid to date?

Similar to what ceeforcat did.

First I assumed they were a basic rate tax payer.
So how much would they have to be taxed at 20% for to bring their total to 17%?
Gross income = i
Taxable income at 20% = i - 8,230
Tax paid = (i - 8,230) x 0.2
This is 17% of their gross income. So
(i - 8,230) x 0.2 = i x 0.17
Multiplying out the brackets gives
i x 0.2 - 8,230 x 0.2 = i x 0.17
Rearranging gives
i x 0.03 = 1,646
i = 54,867

Which would take them into higher rate. So my assumption was wrong.
Gross income = i
Taxable income at 20% = 34,370
Tax paid at 20% = 34,370 x 0.2 = 6,874
Taxable income at 40% = i - 8,230 - 34,370 = i - 42,600
Tax paid at 40% = (i - 42,600) x 0.4
Total tax paid = 6,874 + (i - 42,600) x 0.4
This is 17% of their gross income. So
6,874 + (i - 42,600) x 0.4 = i x 0.17
Multiplying out the brackets gives
6,874 + i x 0.4 - 42,600 x 0.4 = i x 0.17
Rearranging gives
i x 0.23 = 10,166
i = 44,200

lovinituk

Yes, I managed to work it out once ceeforcat pointed out what I was missing. I'm not a dummy at maths by any means - just had a bit of a 'blonde' moment!!