Annual Bonus and Tax deduction

Hawksmuir

I have just received my annual bonus, for which I am grateful.
However, the tax I have had to pay on this has seen it drop from a top line of £3K to a bottom line bonus of £1,800.
Obviously the tax man thinks I have a had a massive pay rise and has taxed me accordingly, however should I start to see a reduction in my tax next month (Feb), and March ?

My current tax code is 434T (incase that makes a diffence, and my salary is below the higher rate of tax).

chrisbur

Can you advise your year to date gross, and total tax paid to date from your last pay advise? Also date payment made or month number. Is your code being applied on a cumulative basis or a month 1 basis?

fengirl_2

the taxman knows nothing of your income until the end of the tax year when your details are sent to the tax office.
However, the way the tax tables which operate PAYE work is that a large salary payment in any month will give the assumption that this is a permanent rise and higher rate tax may be due. As you have guessed, in Feb and March, when your salary is back to normal, you will receive small repayments of the higher rate tax deducted.

Hawksmuir

fengirl wrote: »

the taxman knows nothing of your income until the end of the tax year when your details are sent to the tax office.
However, the way the tax tables which operate PAYE work is that a large salary payment in any month will give the assumption that this is a permanent rise and higher rate tax may be due. As you have guessed, in Feb and March, when your salary is back to normal, you will receive small repayments of the higher rate tax deducted.

Excellent news.

Now I have to sort out my wrong PAYE code for 2008-2009

chrisbur

Hawksmuir wrote: »

I have just received my annual bonus, for which I am grateful.
However, the tax I have had to pay on this has seen it drop from a top line of £3K to a bottom line bonus of £1,800.
Obviously the tax man thinks I have a had a massive pay rise and has taxed me accordingly, however should I start to see a reduction in my tax next month (Feb), and March ?

My current tax code is 434T (incase that makes a diffence, and my salary is below the higher rate of tax).

If the figures you quote are exact then you have paid £1200 in tax on the £3000 bonus. This is exactly 40% and would suggest that your normal earnings are at the point where 40% tax is due although you say your salary is below this level. Without exact figures it is difficult to see what is happening.

Hawksmuir

chrisbur wrote: »

If the figures you quote are exact then you have paid £1200 in tax on the £3000 bonus. This is exactly 40% and would suggest that your normal earnings are at the point where 40% tax is due although you say your salary is below this level. Without exact figures it is difficult to see what is happening.

Salary is approx £33K, below 40% threshold, however top line on my Jan payslip is just under £6K, so obviously Tax man thinks I am now on approx £70K.

chrisbur

Hawksmuir wrote: »

Salary is approx £33K, below 40% threshold, however top line on my Jan payslip is just under £6K, so obviously Tax man thinks I am now on approx £70K.

Not if you were on a cumulative code. If we assume that you January salary was paid in month 10 then a £3000 bonus would only be the equivalent of £300 extra a month. Ten months of your salary would be about £27500 and with the extra £3000 we have £30500 which would not be enough to pay 40% tax. If however you were on a month 1 code then the one month would be taxed in isolation and 40% would be paid.