Annual bonus payment (Tax question)

haddock_n_chips

Ok i've figured out the N.I. difference and yes taking a lump sum is better. (£142.12 less than taking 3 payments)

It's just the hit of getting 40% tax from a large payment, but am I correct in thinking that when PAYE sees the next month payment back at normal rate, I will get some sort of tax relief to compensate?

I kind of understand it now!

chrisbur

haddock_n_chips wrote: »

Ok i've figured out the N.I. difference and yes taking a lump sum is better. (£142.12 less than taking 3 payments)

It's just the hit of getting 40% tax from a large payment, but am I correct in thinking that when PAYE sees the next month payment back at normal rate, I will get some sort of tax relief to compensate?

I kind of understand it now!

The trouble with most tax calculators is that often to understand the answer you get you need to understand PAYE and if you can understand PAYE you do not need the tax calculator.

You will not pay any tax at 40% the figures you got from listento taxman assume that you will get £5166 every month of the tax year, which is certainly not the case. Even if you get paid in month 2 you will have two months tax free allowance and two months 20% band allowance to set against your earnings for months one and two. Earnings for months one and two are 7332 and you can earn over 7500 before you pay tax at 40%. The figure of 7500 applies to someone on 1150L and if I remember correctly your code is a touch higher so you will get just over 7500 at month 2.

If your bonus had been paid in month 1 then you would have paid some tax at 40% and that would then have been returned to you in month 2, but on this timescale no 40% tax. Unless your tax code is non-cumulative, unlikely at this point and with your tax code.

haddock_n_chips

chrisbur wrote: »

The trouble with most tax calculators is that often to understand the answer you get you need to understand PAYE and if you can understand PAYE you do not need the tax calculator.

You will not pay any tax at 40% the figures you got from listento taxman assume that you will get £5166 every month of the tax year, which is certainly not the case. Even if you get paid in month 2 you will have two months tax free allowance and two months 20% band allowance to set against your earnings for months one and two. Earnings for months one and two are 7332 and you can earn over 7500 before you pay tax at 40%. The figure of 7500 applies to someone on 1150L and if I remember correctly your code is a touch higher so you will get just over 7500 at month 2.

If your bonus had been paid in month 1 then you would have paid some tax at 40% and that would then have been returned to you in month 2, but on this timescale no 40% tax. Unless your tax code is non-cumulative, unlikely at this point and with your tax code.

Thank you

And thanks everyone for all the help, new ground for me as never been lucky enough to get a bonus before, so very happy! :T

Have informed employer I would like as a lump sum in paycheck, will be in the June pay which will be on 30th June

chrisbur

That will be month 3 so by then you can earn just over £11250 before any 40% tax due and your earnings will be about £7332 well below that figure.