Bonus and Tax

SeanB1309

Hello All

Looking for a bit of advice as have had conflicting info up to now!!

Annual Salary is £25000 with a bonus payable this month of £3366.

I also pay a SL on Plan 1.

Can someone please confirm the correct amount I will be deducted?

ie will I be treated as a 40% tax payer as this month (if same payment every month) would take me over the 20% threshold?

I got this info online:

Bonus Period £5448.25
Taxable £4531.58
Tax £ 906.32
NI £ 386.70
SL £359.13

Take home £3796.11


BUT
It also stated this below:

You might find that about an extra £372.98 of income tax than indicated above is actually deducted from your bonus payslip. This is because your earnings in this pay period put you over the income tax threshold for the month, but not for the year. Normally, this "extra tax" is refunded in subsequent payslips.


Can someone help a very confused tax payer?!

Thank you

Dazed_and_confused

The short answer is, as is increasingly common on this board, that you simply haven't supplied sufficient detail for anyone to give a definitive answer.

Most importantly your current tax code.

However if we assume you have the standard 1100L code then you are miles off being a higher rate payer.

If this bonus is paid in the month to 05:10:2016 then it is in month 6 of the tax year and your pay to then should be £15866 (6/12 of £25000 + bonus of £3366). At this point that is less than £32000 per annum and as the higher rate limit is based on £43000(?) there would be no higher rate tax to pay.

Tax for this month should therefore be whatever you normally pay plus 20% of the bonus amount but there are plenty of online calculators to test this on, including a simple one on gov.uk.

Probably easiest to start with your month 5 payslip (period to 05:09:2016) and add in your expected pay this month to see how much you will pay in month 6

chrisbur

This looks like the "The Salary Calculator" was used. Most of these calculators are using a slightly simplified method of working out tax and NI. In most cases they will give a correct or at least very nearly correct answer but in a few cases the answer will be wrong or at least confusing.
This is one of the confusing ones. The problem is that the calculator does not take into account when the bonus is paid. The actual tax due on this bonus has been worked out correctly but in reality the way it is arrived at will vary with when the bonus is paid.
If it paid in the early part of the year the bonus you are getting would take you into the 40% band and extra tax would be taken. As the year progressed you would get more allowance for tax at 20% and the tax you paid at 40% would gradually be adjusted to 20% thus refunding half of that 40% you paid to convert it to 20% tax.
If however it is paid later in the year you have built up more 20% tax allowance (it goes up by 1/12 of the yearly allowance each month in the same way as your personal allowance does) so you now have enough to cover the full bonus so only 20% tax is taken.
So either way at the year end the same tax has been taken; just in a different way.

The problem with most tax calculators is that they have limitations, especially when something different to the usual pattern of payments happens and that is often when people go to a tax calculator.

getmore4less

The problem with most tax calculators is that they have limitations, especially when something different to the usual pattern of payments happens and that is often when people go to a tax calculator.

there is a tax calculator that does give the right answer
(well very very close depends which method your employer uses)

http://tools.hmrc.gov.uk/hmrctaxcalculator/screen/Personal+Tax+Calculator/en-GB/summary?user=guest

chrisbur

getmore4less wrote: »

The problem with most tax calculators is that they have limitations, especially when something different to the usual pattern of payments happens and that is often when people go to a tax calculator.

there is a tax calculator that does give the right answer
(well very very close depends which method your employer uses)

http://tools.hmrc.gov.uk/hmrctaxcalculator/screen/Personal+Tax+Calculator/en-GB/summary?user=guest

I knew there was one somewhere but could not remember where. Have bookmarked it now so can recommend it if needed in the future. Many thanks.