Tax Thresholds / Bonuses

andy768

Hi,
I've just been told I will be getting an end of year bonus from work, and it will be paid at the end of April. With the bonus added to the monthly pay, it will mean my April paycheck will fall into the 40% category instead of the usual 20%.
What I'm wondering is how that works in terms of claiming the extra tax back on the monthly amount as spread over the 12 months the overall rate should be 20%. Will I have to claim it back next April as total tax throughout the year would have been overpaid?
Thanks

Cardinal-Red

Under the PAYE system you'll be gradually 'reimbursed' for this over the remaining of the tax year so that by the end of next March, you'll have paid the correct tax.

taxdoctor

Caridnal-Red is right Andy,

Your employers look at your pay to date at the end of every month and compare that with what they call the "freepay to date" or how much you were allowed to earn to date without paying any tax.

They then apply the relevant tax rates to make sure you are taxed correctly for that month.

If for arguments sake you didn't earn very much in May then they would probably make the adjusting tax refund through those wages.

It all sorts itself out as it goes along.

andy768

Ok thanks. Out of interest, is this "freepay to date" broken down for both the 0% and 20% tax rates?

taxdoctor

andy768 wrote: »

Ok thanks. Out of interest, is this "freepay to date" broken down for both the 0% and 20% tax rates?

The "freepay to date" is another way of saying the amount you are allowed to earn to date without paying tax, so that is effectively the 0% band.

Then anything over that would be charged at 20% (until you get to the higher rate band)