Tax on Bonuses

IanStillwell52

Hello

New to the site so not sure where the best place is to post this question: it is work related so thought here would be good.

My partner works for the civil service and has just received a bonus for the year. She earns just shy of 17k per annum and her pre-tax bonus is £1450.

She has been told that she will have to pay 40% tax on this.

Is this correct. As she is nowhere near the 40% tax band I am puzzled as to why she would be charged this much. The samething happened two years ago.

Is this a civil service thing?

Is anyone in the know out there? Has anyone else experienced the samething?

Thanks for any help in advance

Ebe_Scrooge

What it may be is that she'll be taxed at 40% initially. The tax system is somewhat odd - if in one month you earn the equivalent of the higher-rate salary, they'll assume you are earning that every month - if that makes sense ? Basically they'll look at that month's salary, multiply it by 12 and assume that's your annual salary. That may well put her in the higher rate tax bracket.

However, over the year it'll even itself out - when her monthly salary drops back to her usual level, HMRC will realise she's overpaid tax, and reduce the tax for subsequent months accordingly. So she won't lose out overall, but it just means for that month she won't receive as much of the bonus as she might be expecting, in net figures. Hope this makes sense, I've probably not explained it very well !

chrisbur

IanStillwell52 wrote: »

Hello

New to the site so not sure where the best place is to post this question: it is work related so thought here would be good.

My partner works for the civil service and has just received a bonus for the year. She earns just shy of 17k per annum and her pre-tax bonus is £1450.

She has been told that she will have to pay 40% tax on this.

Is this correct. As she is nowhere near the 40% tax band I am puzzled as to why she would be charged this much. The samething happened two years ago.

Is this a civil service thing?

Is anyone in the know out there? Has anyone else experienced the samething?

Thanks for any help in advance

If we assume the usual tax code of 1000L then as at month 5 you would have a tax free allowance of 4166 and a 20% band allowance of 13277 giving 17443 before any 40% tax was due.
On 17000 at month 5 earnings would be 7083 and with bonus of 1455 would have 8538 so well short of paying any 40% tax.
Even on emergency tax would need to get over 3488 in the month to pay any 40% tax and 17000 for one month is 1416 plus bonus of 1455 is only 2871.
To the best of my knowledge the civil service have no special tax rules.

I would say see what happens and if it looks like tax at 40% has been taken put the figures on here and they can be checked, though use "The Cutting Tax Board".

Regarding what happened before to check will need details. From the payslip that had the bonus would need tax code, tax basis, taxable gross, tax paid, taxable gross to date and tax paid to date.
With these details can see exactly what was paid.

wongawonga

IanStillwell52 wrote: »

not sure where the best place is to post this question:

Welcome.:D

The Tax Forum see: http://forums.moneysavingexpert.com/forumdisplay.php?f=22

chrisbur

Ebe_Scrooge wrote: »

What it may be is that she'll be taxed at 40% initially. The tax system is somewhat odd - if in one month you earn the equivalent of the higher-rate salary, they'll assume you are earning that every month - if that makes sense ? Basically they'll look at that month's salary, multiply it by 12 and assume that's your annual salary. That may well put her in the higher rate tax bracket.

This is not how the tax system works it follows a few simple rules and up until recently HMRC had no knowledge of what tax was paid until the tax year ended. They do now get to see the figures as each payment is made but I doubt if they take any action as a result of seeing them unless perhaps something is being done incorrectly.
The following is slightly simplified and covers only up to 40% tax but shows how tax is calculated for each month.
Month 1 1/12 of tax free allowance and 1/12 of 20% tax allowance is given and tax is worked out
Month 2 2/12 of tax free allowance and 2/12 of 20% tax allowance is given and tax is worked out. Tax paid in month 1 is deducted and what is left is the tax for month 2
Month 3 3/12 of tax free allowance and 3/12 of 20% tax allowance is given and tax is worked out. Tax paid in months 1 and 2 is deducted and what is left is the tax due for month 3.

This continues each month until the tax year end when you get
Month 12 All of the tax free allowance and all of the 20% band is given and tax is worked out. Tax paid in months 1 to 11 is deducted and what is left is the tax due for month 12.

No assumptions are made regarding what you might earn in the future you just pay the tax due at that point in the year on your earnings as at that point in the year.