Bonus payment in salary

Nearlydebtfree

Hi

I just wondered if anyone could assist.

My usual salary is £48k and I have received commission of £5175.85 this month which means my gross salary is £9,175.85. I have paid £2,609.60 which is about £750 more than expected. I am assuming that this is because it was paid so early in the tax year and I’ve been taxed on the assumption that I’ll earn this every month. Could anyone help with over how many months I’m likely to be refunded the additional monies as I understand from a previous post it won’t be repaid next wage.

I’d just like an idea of my upcoming salary for the next few months for budgeting purposes.

Many thanks

Dazed_and_confused

You need to look at your annualised taxable pay. Which isn't necessarily the same as your salary even when ignoring the bonus

You haven't said where you are resident for tax purposes but for simplicity we'll assume it's not Scotland.

You haven't told us what your tax code is but for simplicity we'll assume it's the emergency tax code, 1250L.

That means anything over £50,000 (£12,500 + £37,500 basic rate band) is taxed at 40%.

After two months of the tax year it looks like your taxable pay is £13,175.85. Which is an annual equivalent of £79,055. So lots of 40% tax is due.

If your taxable pay in month 3 is £4,000 again then that is a total of £17,175.85. Which is an annual equivalent of £68,703 so less 40% tax is due.

And so on each month.

But based on what you have said 40% tax is always going to be due on some of the bonus as even in a very simple scenario it takes you over the higher rate limit.

The simplest way to work out how the tax will be impacted is to Google manual PAYE calculation and use the calculator on gov.uk. You need the details from your May payslip and can then input the expected taxable pay for June/month 3 along with your May payslip info (including tax code) and it will show the tax due next month.

Nearlydebtfree

Many thanks, yes I am in England and my tax code is 1250L. I did the calculation and it appears I will be paying £557.80 next month which I am a little confused about as I usually pay that anyway? Sorry if I appear completely thick

I have tried to paste in a copy of my screenshot with the HMRC but it won't let me for some reason?

molerat

Monthly tax on a £4K wage is around £591. For the rest of the year you will pay around £558 so a refund of around £33 per month.

chrisbur

Nearlydebtfree wrote: »

Many thanks, yes I am in England and my tax code is 1250L. I did the calculation and it appears I will be paying £557.80 next month which I am a little confused about as I usually pay that anyway? Sorry if I appear completely thick

I have tried to paste in a copy of my screenshot with the HMRC but it won't let me for some reason?

I actually made the figure for month 3 tax £558.20. Not a lot of difference there but I made the figure for month 1 tax assuming gross of £4000.00 to be £591.40 so I was seeing a difference between month 1 and month 3 both on £4000.00 of £33.20.

If you consider that the figure at which you pay 40% tax is 50000.00 a year this means that the point you pay 40% tax goes up by 1/12 of that each month which is £4166.67
So earning £4000.00 and the figure at which you pay 40% tax going up by £4166.67 it means that in month 3 you had £166.67 converted from 40% tax to 20% tax so reducing your "normal" tax of £591.40 by 20% of £166.67 which is £33.33
Yours went down by £33.20 a bit less due to the way tax is rounded in calculation but that is just about all the reduction you are going to get. It may vary up or down 20p in some months.

I think that you need to re-check what tax you paid for month 1 as there should definitely be a difference though perhaps not as great a difference as you were hoping for. Were the figures you gave taxable gross?
The fact is that on £4000.00 a month you are so close to the point of paying 40% that each month only £166ish taxable is being converted from 40% tax to 20% tax

unholyangel

Nearlydebtfree wrote: »

Many thanks, yes I am in England and my tax code is 1250L. I did the calculation and it appears I will be paying £557.80 next month which I am a little confused about as I usually pay that anyway? Sorry if I appear completely thick

I have tried to paste in a copy of my screenshot with the HMRC but it won't let me for some reason?

Your personal allowance and basic rate band is apportioned. So while its 12500/37500 for the year, if you're paid per month then you get 1041/3125 per month.

In any pay period, your taxable income is set against the apportioned amount of personal allowance/basic rate band (assuming you're on a cumulative code and not a w1m1 code). And then the tax you've paid is deducted from that figure and the difference is what you would pay in tax that month.

So m1, 9175 - 1041 (apportioned personal allowance) - 3125 taxed at 20% = 5009 taxed at 40%. So 40% of 5009 = 2003 + 625 (20% of 3125) = 2628 tax due (im assuming the difference is because you earn more like 47400 than 48000).

m2 13175 earnings - 2083 (12500/12*2) - 6250 = 4842 taxed at 40%. 40% = 1936 + 1250 (6250 @ 20%) = 3186 tax due - 2628 already paid = 558 tax deducted from that pay.

Molerat is correct that you'd normally pay 591 on a wage of 4k. Yours is reduced because each month, there is 167~ of basic rate band unused by your normal wage - reducing your liability each month by 20% of 167 = 33 (591 - 558 = 33)

Nearlydebtfree

Thank you so much everyone for taking the time to reply. I understand a lot more about tax now and will definitely use the PAYE calculator to check on my salary.

Thanks! Much better position to know what I am expecting rather than get an unexpected shock!