Bonus has taken me over £100k

Clive_Woody

Definitely not a complaint, but not sure what to do as my company has paid a bonus in March that has taken me over the £100k bracket, so into the 60% tax band. My tax code for 2021-22 is 1257L

I had maxed out my pension contributions (salary sacrifice) which would have bought my adjusted salary just under £100k, but with my bonus my gross/taxable pay for the year will be just over £117k. From what I understand this will mean that I have underpaid tax for 2021-22 tax year.

This is my only income and I have alway been PAYE (never done a self assessment)

Any thoughts/guidance on what I need to do would be really appreciated as not been in this position before. Also I have been given a pay rise which will mean next year I am also likely to be earning over £100k.

[Deleted User]

You will need to register for self assessment firstly. 

For 2021/22 you will have received c£8500 personal allowances more than you should have, potentially underpaying £3400 for that year. You should also update your personal tax account to estimate your earnings for 2022/23 to mitigate any underpayment for that year also.

Dazed_and_C0nfused

You will have to do a Self Assessment, for one year at the very least.

Do you have scope within your annual allowance to contribute to a SIPP?

This won't reduce your taxable income but does increase your basic rate tax band and reduces your adjusted net income, which is what determines your Personal Allowance.

Remember all taxable income must be counted as part of your adjusted net income.  So for example £300 interest which is taxed at 0% is still adding £300 to your adjusted net income.

Grumpy_chap

Congratulations Clive - a nice position to be in

Out of interest, you say you have maxed out your pension contributions through SS.  Do you mean the £40k contributions allowance?  If so, do you have carry forward allowance from previous years that will allow you to make additional SS and avoid the degradation of personal allowance?

You can also make gift aid donations and reduce the tax liability should you so choose.

Clive_Woody

Grumpy_chap said:

Congratulations Clive - a nice position to be in

Out of interest, you say you have maxed out your pension contributions through SS.  Do you mean the £40k contributions allowance?  If so, do you have carry forward allowance from previous years that will allow you to make additional SS and avoid the degradation of personal allowance?

You can also make gift aid donations and reduce the tax liability should you so choose.

Thank you. I have maxed out SS pension (£40/k) for several years so no carry forward allowance I can use unfortunately. This has previously allowed me to stay under the £100k mark but this pesky bonus has taken me into new territory 

Clive_Woody

Dazed_and_C0nfused said:

Remember all taxable income must be counted as part of your adjusted net income.  So for example £300 interest which is taxed at 0% is still adding £300 to your adjusted net income.

Cash savings are in my wife’s name (she doesn’t work) so no interest payments for me to take into consideration.

Clive_Woody

[Deleted User] said:

You will need to register for self assessment firstly. 

For 2021/22 you will have received c£8500 personal allowances more than you should have, potentially underpaying £1700 for that year. You should also update your personal tax account to estimate your earnings for 2022/23 to mitigate any underpayment for that year also.

I did try logging into my HMRC tax account but couldn’t see where to change potential earnings, not sure if a phone call might be more successful.

With my pay rise that comes into account from April and a similar bonus next year I think I will most likely lose all of my person allowance. Can I simply request that I have a tax code with £0 personal allowance?

Is that a daft idea?

[Deleted User]

Clive_Woody said:

[Deleted User] said:

You will need to register for self assessment firstly. 

For 2021/22 you will have received c£8500 personal allowances more than you should have, potentially underpaying £1700 for that year. You should also update your personal tax account to estimate your earnings for 2022/23 to mitigate any underpayment for that year also.

I did try logging into my HMRC tax account but couldn’t see where to change potential earnings, not sure if a phone call might be more successful.

With my pay rise that comes into account from April and a similar bonus next year I think I will most likely lose all of my person allowance. Can I simply request that I have a tax code with £0 personal allowance?

Is that a daft idea?

There should be an option under PAYE to go this but haven’t been on this site for a while. The effect of adjusting your code to 0T will mean that you will overpay as you don’t, as of yet, hit the 125140 threshold where all of your personal allowance would disappear.

Grumpy_chap

Clive_Woody said:

Thank you. I have maxed out SS pension (£40/k) for several years so no carry forward allowance I can use unfortunately. This has previously allowed me to stay under the £100k mark but this pesky bonus has taken me into new territory 

You might be able to consider higher risk / more volatile investments that still benefit from tax relief on contributions such as VCT or EIS.  Not that I know the first thing about these vehicles.

Alternatively, that pesky bonus could be solved by giving it away (what's left after tax) so that you don't need to be bothered by it  

If there are any local projects in your area that need funding, gift aid sort of allows you to at least choose where your taxes are spent.  I think this is can be particularly attractive to people with school-age children - after all who wouldn't support their own children's education if it is tax efficient also?

Flugelhorn

I used to just pay the tax when I hit that though used to aim to keep taxable income just  under it, meant refusing work which didn't always go down well

Grumpy_chap

I think I have realised how good my Accountant is - he contacted me in the first week of March with a review and proposed actions to take to achieve maximum tax efficiency.  Together with an apology that I'd still have to pay some tax this year.