Paying correct tax with bonus when income exceeds £100k

[Deleted User]

Mick70 said:

purdyoaten2 said:

Mick70 said:

 are you meant to inform hmrc if all earnings will be over 100k ?  Or does it just come out in the wash when do your tax return ?

Yes you do. And you need to complete a self-assessment return! It’s all here - just two questions in!

https://www.gov.uk/check-if-you-need-tax-return/y/no/more-than-100-000

Yes but if you already so self assessment anyway was what I meant ? Sorry 

Well - it will all come ‘out in the wash’ with your return. You could log in to your tax account in about ten days time and amend your estimated income for 2021/22 to prevent an underpayment happening in that tax year.

Lorian

[Deleted User] said:

You could access your online account and change your estimated PAYE income to £70000 or anything under 100000 actually.

This is the way if you dont want to await till you've done your tax return.
you can do this in online tax account for sure.

Mick70

What happens if you have two incomes , one salary and one pension and combined they go over the £100k ?  If you do self assessment .  If you go
on your govt gateway and key in the correct figures it still shows a normal tax code ?   

[Deleted User]

Mick70 said:

What happens if you have two incomes , one salary and one pension and combined they go over the £100k ?  If you do self assessment .  If you go
on your govt gateway and key in the correct figures it still shows a normal tax code ?   

It doesn’t on self-assessment. If it did there would be a lot of awareness by this stage.

If you are talking about changing your income on the online portal, your entries do not automatically change anything. You are simply providing HMRC with information to make any necessary changes.

Mick70

So in that case will hmrc just apply the bog standard 1250 code at first then hammer you with extra taxes once past that 100k during year ?  Can’t get my head round what happens ?
should I ring them ?

Pennywise

Mick70 said:

So in that case will hmrc just apply the bog standard 1250 code at first then hammer you with extra taxes once past that 100k during year ?  Can’t get my head round what happens ?
should I ring them ?

Yes ring or keep them informed via your personal online tax account to tell them of your current year projected income.  If you tell them you expect it to be under £100k, they'll give you a full tax code.  If you tell them it'll be over £125k they'll give you a PAYE code with no personal allowance.  If inbetween, they'll give you a PAYE code with a proportion of your PA.  
Until you tell them, all they have to go on is your previous year P60 - they've no idea if nor when you'll get a bonus.
If you're bothered about reducing the chances of large under/over payments, at the start of the year tell them £70 (or whatever) so you're tax code is "right" on that level of wages.  When you know you're getting the bonus, tell them your updated higher income level and they'll issue a new PAYE code restricting or reducing the personal allowance.
It's in your hands to keep them informed.  They won't know until you tell them.  They won't automatically restrict your tax code after they receive the monthly RTI submission from your employer with the bonus included - they work on a year by year basis for PAYE codes and don't automatically check after each monthly/weekly submission.

MattMattMattUK

[Deleted User] said:

MattMattMattUK said:

n987654321 said:

Thanks both. 

Yes, it is largely a cash flow issue, as the difference that I would be over or underpaying is quite substantial. The way I understand it, and please do correct me if I'm wrong, is that my two options are:
1. Overpay throughout the year and receive a tax refund if I do not receive the bonus
2. Underpay throughout the year and get hit with a large tax bill if I do receive the bonus.

One more question. If I don't receive the bonus and my yearly gross income remains at £70,000, but I have overpaid tax, will my Personal Allowance will be reinstated in full through a refund? 

You will not lose out over the whole year regardless of if you get no bonus, partial bonus, full bonus, or somehow double bonus, HMRC will recalculate at the end of the financial year, either via PAYE if you stay under the threshold, or Self Assessment if you go over £100k and need to submit one. 

If I were you and with that level of income and bonus I would go and speak to an IFA, your effective tax rate on the bonus would be very high due to the combined effect of it being fully in the 40% higher rate (+2% NI) and the loss of the personal allowance.

Personally I would be making sizeable pension contributions, possibly the entirety of anything over £100k. If you pay Tax and NI on £120k the combined total deductions would be £45,756, meaning your net income would be £74,244 with nothing extra in your pension pot. With the same total income of £120k pa, but paying £20k into your pension pot you would only pay £25,756 in total deductions, with £20,000 put into a pension, meaning your net income would be £74,244, but you would have £20k in your pension pot. So you can see why some serious wealth planning might be a good idea.

Are you sure about the second figure for total deductions at £25756?

On a reduced salary of £100000 I make it £27500 tax and £5860 NIC.

Not quite sure how I managed that, some form of brain fart! Especially as I know I ran both sets of numbers.

tim_london

Mick70 said:

 are you meant to inform hmrc if all earnings will be over 100k ?  Or does it just come out in the wash when do your tax return ?

Earning is a bit loose.  Technically it's taxable income so it's after salary sacrifice.

i.e. If my salary £139,999 and have a £40k salary sacrifice into pension then I'll be under the 100k limit and do not need to do self assessment.

Dazed_and_C0nfused

tim_london said:

Mick70 said:

 are you meant to inform hmrc if all earnings will be over 100k ?  Or does it just come out in the wash when do your tax return ?

Earning is a bit loose.  Technically it's taxable income so it's after salary sacrifice.

i.e. If my salary £139,999 and have a £40k salary sacrifice into pension then I'll be under the 100k limit and do not need to do self assessment.

True.  But if you any any interest or dividend income which took your (adjusted net) income to over £100k you would need to complete one.

Even if the interest and dividend income was all taxed at 0%.

csgohan4

filing a SA is simple once you get into it. However if your not confident, pay an accountant to do it.