How to minimise tax on a bonus

Toffee5959

Good Afternoon

I currently get paid every 4 weeks and my gross pay is £4K each pay period. We get paid 13 times a year so a yearly salary of £52k.

However I’ll get a £9k bonus this month, will this mean that the tax I pay will incorporate them thinking I earn more than £100k a year and therefore impact my personal allowance. Am I best trying to pay a lump sum into my pension and/or shares, or will the tax implications balance out throughout the year?

Thanks
Emma 

[Deleted User]

You will pay an inordinate amount of tax on the bonus initially. The excess will gradually be recouped as your taxable salary averages out - basically what the latter half of your final sentence stated. 

Dazed_and_C0nfused

Toffee5959 said:

Good Afternoon

I currently get paid every 4 weeks and my gross pay is £4K each pay period. We get paid 13 times a year so a yearly salary of £52k.

However I’ll get a £9k bonus this month, will this mean that the tax I pay will incorporate them thinking I earn more than £100k a year and therefore impact my personal allowance. Am I best trying to pay a lump sum into my pension and/or shares, or will the tax implications balance out throughout the year?

Thanks
Emma 

That is unlikely to happen.

After month 2 of the tax year your annual earnings will equate to £102,000 (£8,000 + £9,000 ÷ 2 x 12).

After month 3 they will drop to £84,000 (£12,000 + £9,000 ÷ 3 x 12).

And so on, reducing each month you earn £4,000.

So unless your tax code happened to be reviewed in the period between your employer reporting your month 2 and 3 payments you shouldn't see any change to your Personal Allowance.

However as you are already a higher rate payer you would end up paying 40% tax on the bonus so making additional pension contributions is probably a good choice financially.

Buying shares won't save you any tax at all as far as the bonus is concerned.

NB.  Monthly example used for simplicity, your figures will differ slightly from being paid 4 weekly.

Toffee5959

Okay thank you both for your swift replies, I was just concerned about going into the £100k bracket but it doesn’t sound like that will impact me significantly.

Thanks

Toffee5959

The only reason I said about shares is because they come out of my gross pay before tax and NI

Albermarle

From a long term investing point of view, diversified funds in a pension are a lot less risky than buying individual shares, even if it is in your own employer.