Tax & NI on bonus

teeej97

Hi I am a standard rate tax payer currently earning £25,500 p/a (but this is set to increase to £30k p/a in May 24. 

I am being paid a substantial bonus of nearly £13k which my employer has offered to pay in instalments to avoid the initial 40% tax however I understand that I would be better taking a lump sum to avoid paying 8% NI if I took instalments. 

My question is, when will I be repaid the overpayment of PAYE tax? Can I claim this back in one lump sum or will it be deducted from my tax for the rest of the year? 

DE_612183

Normally any over-payments will be calculated at the end of the financial year ( April 2025 ) and then refunded, or your tax code maybe adjusted.

[Deleted User]

DE_612183 said:

Normally any over-payments will be calculated at the end of the financial year ( April 2025 ) and then refunded, or your tax code maybe adjusted.

No - in the op’s case he will pay a lot of HR tax on the bonus initially before it gradually is recouped over the tax year as the ‘projected salary’ for the whole tax year decreases. 

The NI assumption is also correct.

mybestattempt

In these circumstances it's unlikely there will be an overpayment relating to the bonus.

If PAYE is operated correctly over the course of the year, the tax deducted should be correct by the end of 2024/25.

Tax_Accountant

For the 2024/25 tax year, Class 1 National Insurance is calculated at 8% for earnings between £272 to £967 per week. Above this, the rate drops to 2%. If taking the bonus in instalments pushes your regular pay above the weekly threshold, you could end up paying more NI than if taken as a lump sum.

[Deleted User]

Tax_Accountant said:

For the 2024/25 tax year, Class 1 National Insurance is calculated at 8% for earnings between £272 to £967 per week. Above this, the rate drops to 2%. If taking the bonus in instalments pushes your regular pay above the weekly threshold, you could end up paying more NI than if taken as a lump sum.

Thats the very point the op made in their opening post. 

teeej97

Thanks for the replies all. So it appears that once PAYE realises I have overpaid, my tax for the rest of the year will be reduced to gradually repay me. I do not think my monthly tax will be enough to repay the full overpayment, I assume any balance will be dealt with as a rebate at the end of the tax year? 

Seems like a more sensible position would be for a full rebate to be made as soon as they realise there has been an overpayment and then I continue to pay tax for the rest of the year. As it stands I will be missing months' of interest on that bonus as HMRC will have around £5k of tax to repay! 

[Deleted User]

teeej97 said:

Thanks for the replies all. So it appears that once PAYE realises I have overpaid, my tax for the rest of the year will be reduced to gradually repay me. I do not think my monthly tax will be enough to repay the full overpayment, I assume any balance will be dealt with as a rebate at the end of the tax year? 

Seems like a more sensible position would be for a full rebate to be made as soon as they realise there has been an overpayment and then I continue to pay tax for the rest of the year. As it stands I will be missing months' of interest on that bonus as HMRC will have around £5k of tax to repay! 

If your income remains below the higher rate threshold, and it appears it will, you WILL receive back the excess well before the end of the tax year - by around December. 

DE_612183

teeej97 said:

Thanks for the replies all. So it appears that once PAYE realises I have overpaid, my tax for the rest of the year will be reduced to gradually repay me. I do not think my monthly tax will be enough to repay the full overpayment, I assume any balance will be dealt with as a rebate at the end of the tax year? 

Seems like a more sensible position would be for a full rebate to be made as soon as they realise there has been an overpayment and then I continue to pay tax for the rest of the year. As it stands I will be missing months' of interest on that bonus as HMRC will have around £5k of tax to repay! 

I don't think it will that much.

If your salary is £30k and the payment is £13k, the threshold is £37,700 - so that is £5300 taxed at 40% rather than 20%. so a tax bill of £1,060 to repay - assuming you don't have any other income to take into account...

hugheskevi

teeej97 said:

Thanks for the replies all. So it appears that once PAYE realises I have overpaid, my tax for the rest of the year will be reduced to gradually repay me. I do not think my monthly tax will be enough to repay the full overpayment, I assume any balance will be dealt with as a rebate at the end of the tax year? 

Seems like a more sensible position would be for a full rebate to be made as soon as they realise there has been an overpayment and then I continue to pay tax for the rest of the year. As it stands I will be missing months' of interest on that bonus as HMRC will have around £5k of tax to repay! 

There is no realising there has been an overpayment.

Under PAYE, you receive 1/12 of all your allowances (Personal Allowance, basic rate, etc) each month and pay the appropriate amount of tax. As the year progresses, the allowances steadily build up toward the standard annual amounts.

It doesn't matter whether you are underpaid, overpaid or whatever, your cumulative taxable income is simply applied against the relevant allowances each month. And in the final month of the tax year your total taxable earning is applied to the annual allowances and the correct amount of tax deducted. If necessary, you can have negative income tax in a month (eg, if your Personal Allowance were to be increased in anticipation of a pension contribution) - that won't be relevant to you in this case though. 

[Deleted User]

DE_612183 said:

teeej97 said:

Thanks for the replies all. So it appears that once PAYE realises I have overpaid, my tax for the rest of the year will be reduced to gradually repay me. I do not think my monthly tax will be enough to repay the full overpayment, I assume any balance will be dealt with as a rebate at the end of the tax year? 

Seems like a more sensible position would be for a full rebate to be made as soon as they realise there has been an overpayment and then I continue to pay tax for the rest of the year. As it stands I will be missing months' of interest on that bonus as HMRC will have around £5k of tax to repay! 

I don't think it will that much.

If your salary is £30k and the payment is £13k, the threshold is £37,700 - so that is £5300 taxed at 40% rather than 20%. so a tax bill of £1,060 to repay - assuming you don't have any other income to take into account...

That makes no sense at all! The amount above which one pays higher rate tax is 50270, so no higher rate tax will ultimately be payable.

The problem for the op is that c£15000 will be received in month 2 and tax will be applied on the basis that this will be received each month. 

As chrisbur states, it will be recouped by December.