bonus pushing over 100K - tax code

mortgageadviceda

Hi

Needing some advice and not been in this position before.

After a promotion at work my salary has been increased to £96K. This is fantastic and my tax code should stay as the standard 1257L.

I am also on a POTENTIAL 40 % bonus scheme meaning I could end the year with £134K or likewise I could remain on £96K.

Since I don’t know my bonus payment each year and I don’t want to overpay on tax each month if I don’t get the bonus, will HMRC keep me on the 1257L tax code as per my basic. Then if I do get a bonus, I then do a tax return at year end to pay the additional tax required between £100 - £125K (essentially 60% so I’d owe an extra 20% on the tax I’ve already paid), then 45% (on new tax rules) between £125K and £134K (essentially 5% extra on what tax already paid). 

I’d have to be disciplined with my bonus and put away the extra tax I owe vs the 40% tax I would have paid in my payslip on my 1257L tax code but this seems the more sensible way than guessing at what my personal allowance would be and paying a guess each month given my bonus is so variable.

I know people will comment trying to reduce income to cut tax - pension etc. I will speak to a financial advisor for help with this but my question is whether I could stay on existing tax code given my basic is below 100K then pay back any extra tax owed above £100K on payment of bonus (at end of year by tax return).

Thanks in advance! 

[Deleted User]

On the question - that is what will happen this year. You will pay the tax owed under self-assessment. 

However, HMRC will adjust your code (remove all personal allowances) in future years. You won’t have that option unless, of course, you inform them that your income will not exceed £100000. 🤔

Dazed_and_C0nfused

Whatever happens you will need to complete a Self Assessment return if your adjusted net income is £100k or more.

You need to understand adjusted net income as that is key here.  Some but not all pension contributions can be deducted when calculating your adjusted net income.  Knowing the method used to contribute is very important (net pay, relief at source or salary sacrifice being the usual methods).

Your tax code is simply a provisional attempt to collect the correct amount of tax.

If the information HMRC shows your only income is taxable earnings of £96k the you will likely remain on the 1257L code 

If your earnings are expected to go over £100k i.e. you have taxable pay of say £70k at month 8 of the tax year then HMRC would alter your tax code the next time it's reviewed.  I don't hink just earning that amount in itself is going to prompt a tax code review but maybe it would.

Firefly12345

Depends how likely you are to get a bonus I guess. I assume it is very likely you will get something and this will push you over 100k. If you are not going to mitigate via pension I would elect to tell the HMRC, via the online Gateway, that my salary will be higher. You can set the amount and will the get an amended tax code. This way if you don't get a bonus you will get the tax refunded at the end of the year when you do your return. If you do get the bonus you have paid the tax and nothing more to worry about.

FF