Crossed 100k due to bonus - next steps

DeeKent

Hi all. 

For the first time this year my annual income crossed the 100k mark, so this world of tax is new to me and looking for advice.

Base salary is £95,360.  A bonus of £28k was received.

My tax code is 1257L.  

I pay 7% into the company pension via SS.  Also £110pm private company medical EE pre tax.

I understand I will now have to do a self assessment for crossing into 100k - will HMRC inform me to do so?

Q1: Am I right in thinking I will now OWE additional tax because of lost personal allowance,  and if so how much is that likely to be?

Q2: Next year assuming base pay stays just under 100k and bonus is 30k -  what strategies can I use to benefit from my personal allowance or pay least tax possible going forward?  


Thank you in advance.

Dazed_and_C0nfused

DeeKent said:

Hi all. 

For the first time this year my annual income crossed the 100k mark, so this world of tax is new to me and looking for advice.

Base salary is £95,360.  A bonus of £28k was received.

My tax code is 1257L.  

I pay 7% into the company pension via SS.  Also £110pm private company medical EE pre tax.

I understand I will now have to do a self assessment for crossing into 100k - will HMRC inform me to do so?

Q1: Am I right in thinking I will now OWE additional tax because of lost personal allowance,  and if so how much is that likely to be?

Q2: Next year assuming base pay stays just under 100k and bonus is 30k -  what strategies can I use to benefit from my personal allowance or pay least tax possible going forward?  


Thank you in advance.

You are no longer required to complete a Self Assessment return in the circumstances you have described.

https://www.gov.uk/government/publications/agent-update-issue-108/issue-108-of-agent-update#:~:text=in the year.-,Self Assessment threshold change,returns remains at £100,000.

Q1.  Yes, unless you get a hustle on and make some relief at source pension contributions (or a massive Gift Aid donation) prior to 6 April you can expect a large bill as you will lose all of your Personal Allowance and fall into the 60% trap.
NB.  The above assumes there is zero possibility of making the more tax efficient sacrifice of some salary.

Q2.  You should start be keeping your Personal Tax Account updated with details of your expected earnings (estimated P60 pay value).  Then the obvious choice would be to start sacrificing more salary, in return for additional employer pension contributions.

DeeKent

Dazed_and_C0nfused said:

DeeKent said:

Hi all. 

For the first time this year my annual income crossed the 100k mark, so this world of tax is new to me and looking for advice.

Base salary is £95,360.  A bonus of £28k was received.

My tax code is 1257L.  

I pay 7% into the company pension via SS.  Also £110pm private company medical EE pre tax.

I understand I will now have to do a self assessment for crossing into 100k - will HMRC inform me to do so?

Q1: Am I right in thinking I will now OWE additional tax because of lost personal allowance,  and if so how much is that likely to be?

Q2: Next year assuming base pay stays just under 100k and bonus is 30k -  what strategies can I use to benefit from my personal allowance or pay least tax possible going forward?  


Thank you in advance.

You are no longer required to complete a Self Assessment return in the circumstances you have described.

Q1.  Yes, unless you get a hustle on and make some relief at source pension contributions (or a massive Gift Aid donation) prior to 6 April you can expect a large bill as you will lose all of your Personal Allowance and fall into the 60% trap.
NB.  The above assumes there is zero possibility of making the more tax efficient sacrifice of some salary.

Q2.  You should start be keeping your Personal Tax Account updated with details of your expected earnings (estimated P60 pay value).  Then the obvious choice would be to start sacrificing more salary, in return for additional employer pension contributions.

1) If I don't need to submit a self assessment given the new 150k threshold -  how would I know what I owe exactly after April 6th?  Will it show up in my HMRC account?  


2) HMRC has now changed my tax code to 0T based on estimated income for the year ahead.   Because bonus is discretionary and base salary will not exceed 100k  it would seem more pragmatic to update my estimated income to recover my allowance.  Then update it again mid year if bonus is given.  Is that sensible or not?

Dazed_and_C0nfused

1.  HMRC will send you a Simple Assessment calculation and you would need to pay the tax due by 31 January 2025.
NB.  It's not always Simple Assessment but as you will owe such a large amount that is almost certainly the only option for 2023-24.

https://www.gov.uk/tax-overpayments-and-underpayments

2.  If you don't mind doing that then it shouldn't be a problem.