17/18 Bonus paid in 18/19 in error - now had a tax hit. Any options?

jonnyk

Hi,

I'm after a bit of advice please if anybody can assist...

- My salary is £43k.
- I earned slightly less than this in 17/18 due to changing jobs mid year.
- I earned a bonus of £2,250 in 2017 that was due to be paid in March 18.
- I expect my salary to move to £45K this year

Payment of the bonus was not paid with March salary (23rd March) as expected due to an oversight by payroll. It was agreed that I should be given a cash advance for the net value of the bonus (I got married in April this year so the bonus was expected to come in handy for these extra costs). This was calculated as, and I quote the Financial Controller: "You have a bonus of 2,250. You NI and tax on your earnings are 24.66% a month so I will advance today £1,695". Which I received on 27 March.

I then received the bonus in my April salary, less the £1,695 advanced. But I have now had a 40% tax hit on the bonus amount because it was received in April, rather than in March - where I had headroom in my 17/18 total salary to pay the lower rate tax on the bonus.

So my April monthly salary was about £370 less than I expected, which was that the bonus advance would be paid back with no impact on my normal salary.

I have had a £370 hit in April because of internal administration problems. Is there any way that this can be resolved? My finance team are very blase about this, but I am very annoyed / frustrated that I'm the one paying the penalty for things not happening as they should have done.


Any advice or suggestions would be greatly appreciated.


Thanks!

MichelleUK

jonnyk wrote: »

Hi,

I'm after a bit of advice please if anybody can assist...

- My salary is £43k.
- I earned slightly less than this in 17/18 due to changing jobs mid year.
- I earned a bonus of £2,250 in 2017 that was due to be paid in March 18.
- I expect my salary to move to £45K this year

Payment of the bonus was not paid with March salary (23rd March) as expected due to an oversight by payroll. It was agreed that I should be given a cash advance for the net value of the bonus (I got married in April this year so the bonus was expected to come in handy for these extra costs). This was calculated as, and I quote the Financial Controller: "You have a bonus of 2,250. You NI and tax on your earnings are 24.66% a month so I will advance today £1,695". Which I received on 27 March.

I then received the bonus in my April salary, less the £1,695 advanced. But I have now had a 40% tax hit on the bonus amount because it was received in April, rather than in March - where I had headroom in my 17/18 total salary to pay the lower rate tax on the bonus.

So my April monthly salary was about £370 less than I expected, which was that the bonus advance would be paid back with no impact on my normal salary.

I have had a £370 hit in April because of internal administration problems. Is there any way that this can be resolved? My finance team are very blase about this, but I am very annoyed / frustrated that I'm the one paying the penalty for things not happening as they should have done.


Any advice or suggestions would be greatly appreciated.


Thanks!

Assumptions : You are not in Scotland, your tax code is 1185L and you have no deductuons other than Tax and NI.

Firstly, the calculation of your advance was incorrect. In April, you would be able to earn £3,862.50 before paying 40% tax. Your normal salary is £3,583.33, meaning £279.17 of your bonus would be taxed at 20% and NI at 12% = £89.33. The remaining £1,970.83 is taxed at 40% and NI at 2% = £827.75. So you should have only been advanced £1,333 instead of £1,695, leaving £362 overpaid (the £370 you feel you have lost).

You currently earn £43k, making your annual gross including the bonus £45,250. This is less than the point at which you would pay tax at 40% i.e. £46,350. So, by the end of the tax year, based on current salary, you will not be a 40% tax payer.

Your tax is based on your year to date earnings each time you are paid, so for April, any amount over £46,350/12 £3,862.50 you will pay tax at 40%. Based on current earnings, you will get this extra tax back gradually over the next few months.

So effectively, you will have not lost anything. If you do get a pay raise, this will push you further into the 40% band than if your bonus had been paid in the previous year, but that is a maybe at this point.

jonnyk

Hi,

Thanks for the reply.

My key point is the bonus should have been paid in my March salary, which would have taken my earnings in the 17/18 tax year to pretty much £45K exactly - so under the 40% tax band and the amount advanced would be correct.

Because it was delayed in error and paid in April, I have moved into the tax calculation you have described very well.

I am on 10% bonus which should be paid in March 19. Assuming my salary stays at £43K, in 18/19 I could earn £43K + £2.3K Prior Year bonus + 4.3K Current Year bonus = say £50K.

My earnings should have been £45K in 17/18 (utilising all of the lower rate headroom I now have not used)
And £47K in 18/19

So this is where / why I feel I have been short changed by £362, and feel quite aggrieved that I am out of pocket due to internal mistakes...

MichelleUK

jonnyk wrote: »

Hi,

Thanks for the reply.

My key point is the bonus should have been paid in my March salary, which would have taken my earnings in the 17/18 tax year to pretty much £45K exactly - so under the 40% tax band and the amount advanced would be correct.

Because it was delayed in error and paid in April, I have moved into the tax calculation you have described very well.

I am on 10% bonus which should be paid in March 19. Assuming my salary stays at £43K, in 18/19 I could earn £43K + £2.3K Prior Year bonus + 4.3K Current Year bonus = say £50K.

My earnings should have been £45K in 17/18 (utilising all of the lower rate headroom I now have not used)
And £47K in 18/19

So this is where / why I feel I have been short changed by £362, and feel quite aggrieved that I am out of pocket due to internal mistakes...

Ok, I was trying to show why your April net salary was not as you expected because of their miscalculation.

Even taking into account your future pay rise and March 19 bonus, you would not be £362 out of pocket, that was just the miscalculation on the advance.

As a 20% tax payer, you lose 32% of the bonus (NI at 12%) and as a 40% tax payer, you lose 42% (NI at 2%). This means that you will have only paid 10% extra by it being paid this tax year rather than last, therefore being £225 out of pocket.

Only you know how much you want to push the company to compensate you!

chrisbur

MichelleUK wrote: »

As a 20% tax payer, you lose 32% of the bonus (NI at 12%) and as a 40% tax payer, you lose 42% (NI at 2%). This means that you will have only paid 10% extra by it being paid this tax year rather than last, therefore being £225 out of pocket.

Sorry have to disagree with this calculation. The fact that the OP was a 20% tax payer last year does not mean that the bonus had 12% NI deducted from it, the NI is worked out on the monthly figure so that would result in the bulk of it possibly all of it having NI deducted at 2%.
We do not know what the exact figures were so impossible to exactly work out the affect this had on the earnings but broadly if we assume apart from the bonus the salary for March and April were the same then the NI would also be the same unless it was affected by the change in the upper earnings limit which was 3750 in 17/18 and 3863 in 18/19. At most this would add about £11 to the NI by having the bonus paid in 18/19 rather than 17/18.
If we assume in the absence of exact figures that NI was not making any difference then we just have the difference made by the tax, which could well be that the bonus is going to have 40% tax deducted rather than 20%.
We do know the bonus was £2250 so the extra tax will be £450 assuming the OP is correct about their future earnings, with possibly another £11 or so loss due to NI.

If exact figures are given and exact calculation can be made.

MichelleUK

chrisbur wrote: »

Sorry have to disagree with this calculation. The fact that the OP was a 20% tax payer last year does not mean that the bonus had 12% NI deducted from it, the NI is worked out on the monthly figure so that would result in the bulk of it possibly all of it having NI deducted at 2%.
We do not know what the exact figures were so impossible to exactly work out the affect this had on the earnings but broadly if we assume apart from the bonus the salary for March and April were the same then the NI would also be the same unless it was affected by the change in the upper earnings limit which was 3750 in 17/18 and 3863 in 18/19. At most this would add about £11 to the NI by having the bonus paid in 18/19 rather than 17/18.
If we assume in the absence of exact figures that NI was not making any difference then we just have the difference made by the tax, which could well be that the bonus is going to have 40% tax deducted rather than 20%.
We do know the bonus was £2250 so the extra tax will be £450 assuming the OP is correct about their future earnings, with possibly another £11 or so loss due to NI.

If exact figures are given and exact calculation can be made.

You are absolutely right Chris, not sure how I missed that, must be overtired!:D

jonnyk

Thanks both, this shows the hit I have had on my salary in April (£360ish) and the overall increase tax liability for 18/19 (potentially £450).

MichelleUK wrote: »

Only you know how much you want to push the company to compensate you!

It's not something I really wanted to have to contend with but, adding some emotion IN to the conversation, I had a wedding and honeymoon in April so having my salary reduced by the best part of £400 in this month was far from ideal - and we have a baby due in October. I would like my employer to look at ways to make this right so I'm not the one out of pocket due to their admin errors...

chrisbur

jonnyk wrote: »

Thanks both, this shows the hit I have had on my salary in April (£360ish) and the overall increase tax liability for 18/19 (potentially £450).




It's not something I really wanted to have to contend with but, adding some emotion IN to the conversation, I had a wedding and honeymoon in April so having my salary reduced by the best part of £400 in this month was far from ideal - and we have a baby due in October. I would like my employer to look at ways to make this right so I'm not the one out of pocket due to their admin errors...

Meant to add in my last post your employer can see some details of how to correct a submission for an earlier tax year here....
https://www.gov.uk/payroll-errors/correcting-your-fps-or-eps
Almost certainly there will also be details in the manual for their payroll software or if using the basic PAYE tools details here....
https://www.gov.uk/government/publications/basic-paye-tools-earlier-year-update-payroll-user/basic-paye-tools-using-basic-paye-tools-earlier-year-update-payroll-user

realaledrinker

Bonuses around the tax year end are a nightmare. My son's employer, in their infinite wisdom, pay bonuses at the end of March, but do so as an extra payroll run, rather than as part of the March salary run. As a result it gets taxed on a Month1 basis and he got clobbered for an excess £1,500 tax which he won't get back for several months.

Then he got an extra bonus in April in recognition of spending a couple of months in Puerto Rico helping folks with their insurance claims. This got hammered for tax again again, which won't unwind fully until next March.

chrisbur

realaledrinker wrote: »

Bonuses around the tax year end are a nightmare. My son's employer, in their infinite wisdom, pay bonuses at the end of March, but do so as an extra payroll run, rather than as part of the March salary run. As a result it gets taxed on a Month1 basis and he got clobbered for an excess £1,500 tax which he won't get back for several months.

Then he got an extra bonus in April in recognition of spending a couple of months in Puerto Rico helping folks with their insurance claims. This got hammered for tax again again, which won't unwind fully until next March.

Cannot really say exactly what has happened here but if this March payment was really taxed on a month 1 basis then the tax will have been underpaid. If he wants the tax to be checked he can put up the figures here.
Regarding the April tax this might well all be sorted in the next month or two again no way to say without figures.

zagfles

I thought there was some HMRC rule stating that for tax purposes, a payment counts on the date it was due rather than the date it was actually paid? So get payroll to sort it out properly - adusting your March & April payslips.

ETA: The earliest of the payment or due date. See https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim42260

So if the payment was due in March and was actually paid in April, for tax purposes it should count as paid in March, as I understand it from above. Although if the bonus was discretionary and you didn't have a legal entitlement to it, it might be debatable...