Did I really have almost 10k deductions in one month?

kieranw7261

Hi All,
I signed a retention bonus which has just been paid. As a result, my deductions jumped to almost 10k. Am I likely to see any of that money again or are the tax calculations correct? Any advice is appreciated.

The breakdown is:

Payments:

Salary			4,506.25
R Award			15,750.00
GPP Pension Salary Sacrifice		Rate  5	-225.31

Total Payments 20,030.94

Deductions:

Deduction	Rate	Cash
Tax		6,944.46
NI - A		568.12
Student Loans		1,607.00
GPP Pension		0.00

Total Deductions 9,119.58


This period

Description	Value
Taxable Payments	20,030.94
Pensionable Pay	4,506.25
Employer's NI - A	2,942.09

Year to date

Description	Value
Tax Paid	8,809.06
NI Paid - A	1,314.10
Taxable Pay	32,499.69
Niable Pay	32,499.69
ERs Pension Paid	2,711.70

NET PAY10,911.36

chrisbur

NI and student loan are based on your earnings period so there would be no adjustment to those.  Tax is based on annual earnings but as you are in the 40% tax band on your monthly salary unless you had a fairly large drop in salary later in the tax year the tax deducted will also not alter.
I am making some assumptions here and cannot get the tax figure to exactly agree; for a precise calculation would need your taxable pay to date, tax code, month number or date salary paid.

saajan_12

You've only shown one months payslip.. for this one with a 20k income, 
* Student loan is 9% of the income above ~2k (depends on exact plan) -> 9% x 18k = £1.6k
* NI is 8% for the first bit and then 2% above ~4k -> total £0.5k

Both of these are caclulated per period so you won't get those amounts back but next month's amount will be lower if you don't have the retention amount each month. 

* Income tax is 0% on first 1000, 20% on next 3150, 40% on next 6250, 45% on next 9600, which totals £7.5k. So 6.9k sounds about right. This is based on assuming you have the same income every month, with slight differences if this is not the first month in the tax year and depending on your tax code. So 6.9k is about right now. However in the following months if your income goes back down to 4.5k then the tax will reduce and you'll get the tax back, either this year or next. 

chrisbur

saajan_12 said:

You've only shown one months payslip.. for this one with a 20k income, 
* Student loan is 9% of the income above ~2k (depends on exact plan) -> 9% x 18k = £1.6k
* NI is 8% for the first bit and then 2% above ~4k -> total £0.5k

Both of these are caclulated per period so you won't get those amounts back but next month's amount will be lower if you don't have the retention amount each month. 

* Income tax is 0% on first 1000, 20% on next 3150, 40% on next 6250, 45% on next 9600, which totals £7.5k. So 6.9k sounds about right. This is based on assuming you have the same income every month, with slight differences if this is not the first month in the tax year and depending on your tax code. So 6.9k is about right now. However in the following months if your income goes back down to 4.5k then the tax will reduce and you'll get the tax back, either this year or next. 

If the OP was on a non-cumulative tax code then for a taxable gross of £20250 (I am rounding figures a bit) the tax due would be £7962.  This is about £1000 more than the OP has advised that they paid.  That means that the OP must be on a cumulative tax code.
The OP gives the earnings to date as £32500 and tax to date as £8809.  On a cumulative tax code of 1257L or thereabouts that fits in with the payment being for month 4  giving four payments of around £4500 or just under and an extra payment of £15750.  The tax due on a cumulative tax code of 1257L as at month 4 would be £8809.  
This would include tax paid at 20% and at 40% but none would be paid at 45%
With a salary of around £4500 a month the OP is in the 40% tax band before the extra payment so in order for any of this 40% tax already deducted to be converted to 20% tax they would need to drop to below £4189 on their next payday.  If their monthly earnings remain above the £4189 then there will be no reduction in the tax already deducted.

[Deleted User]

chrisbur said:

saajan_12 said:

You've only shown one months payslip.. for this one with a 20k income, 
* Student loan is 9% of the income above ~2k (depends on exact plan) -> 9% x 18k = £1.6k
* NI is 8% for the first bit and then 2% above ~4k -> total £0.5k

Both of these are caclulated per period so you won't get those amounts back but next month's amount will be lower if you don't have the retention amount each month. 

* Income tax is 0% on first 1000, 20% on next 3150, 40% on next 6250, 45% on next 9600, which totals £7.5k. So 6.9k sounds about right. This is based on assuming you have the same income every month, with slight differences if this is not the first month in the tax year and depending on your tax code. So 6.9k is about right now. However in the following months if your income goes back down to 4.5k then the tax will reduce and you'll get the tax back, either this year or next. 

If the OP was on a non-cumulative tax code then for a taxable gross of £20250 (I am rounding figures a bit) the tax due would be £7962.  This is about £1000 more than the OP has advised that they paid.  That means that the OP must be on a cumulative tax code.
The OP gives the earnings to date as £32500 and tax to date as £8809.  On a cumulative tax code of 1257L or thereabouts that fits in with the payment being for month 4  giving four payments of around £4500 or just under and an extra payment of £15750.  The tax due on a cumulative tax code of 1257L as at month 4 would be £8809.  
This would include tax paid at 20% and at 40% but none would be paid at 45%
With a salary of around £4500 a month the OP is in the 40% tax band before the extra payment so in order for any of this 40% tax already deducted to be converted to 20% tax they would need to drop to below £4189 on their next payday.  If their monthly earnings remain above the £4189 then there will be no reduction in the tax already deducted.

Exactly - I had typed out something similar but it disappeared. 

The op is projected to earn around £74000 in this tax year and will, obviously, remain a 40% taxpayer. 

Strummer22

kieranw7261 said:

Hi All,
I signed a retention bonus which has just been paid. As a result, my deductions jumped to almost 10k. Am I likely to see any of that money again or are the tax calculations correct? Any advice is appreciated.

The breakdown is:

Payments:

Salary			4,506.25
R Award			15,750.00
GPP Pension Salary Sacrifice		Rate  5	-225.31

If your employer offers the option for salary sacrifice for the retention award, that would have been much more tax efficient. You would not have paid extra student loan, national insurance, or income tax.

Look into this option for future bonuses or awards (assuming you would want to pay into your pension to have more money later, rather than a smaller amount in your bank account now).  

chrisbur

Strummer22 said:

kieranw7261 said:

Hi All,
I signed a retention bonus which has just been paid. As a result, my deductions jumped to almost 10k. Am I likely to see any of that money again or are the tax calculations correct? Any advice is appreciated.

The breakdown is:

Payments:

Salary			4,506.25
R Award			15,750.00
GPP Pension Salary Sacrifice		Rate  5	-225.31

If your employer offers the option for salary sacrifice for the retention award, that would have been much more tax efficient. You would not have paid extra student loan, national insurance, or income tax.

Look into this option for future bonuses or awards (assuming you would want to pay into your pension to have more money later, rather than a smaller amount in your bank account now).  

I am not well acquainted with the rules of salary sacrifice as I was never involved with it when in payroll but it might be possible to still get this result.  
Call the bonus £16000 to keep the maths simpler.  There are 8 months left in the tax year so that's £2000 a month to salary sacrifice.  This would be enough assuming your salary remained at about the level of the figures given for this month to get the minimum wage.  Your student loan would reduce by the amount deducted for the bonus or thereabouts, your NI would reduce by more than the amount that was deducted due to the bonus, and  as each month passed some of the tax paid on the bonus at 40% would be adjusted to 20% so lowering the amount you pay.
Overall by the year end you would get slightly more than was deducted from the bonus and have £16000 added to your pension pot.
As I said no idea if this is allowed or even if it was, that your employer would agree to it.