End of tax year and incoming bonus

Renegadecrab · 11 February 2019 at 1:01PM

Good afternoon

Hope you can help me with a question about PAYE tax.

I am about to finish the tax year having had a pretty bad year for earnings, well below the 40% threshold but I have just done a deal at work that is going to mean about £15000 in commission coming in which is amazing and very much needed. My concern is that it is unlikely to come in March pay packet and therefore fall at the beginning of the new tax year.

If it could come in March I thought that i might be taxed more leniently as it still would unlikely take me into the 40% bracket and would hope I wouldn't lost too much of it.

If it comes in April, will I be taxed a large amount and then have to wait until the next tax year to potentially receive a rebate for PAYE assuming I am going to be earning a fortune next year?

My tax code recently changed to one that supposedly looks at each payslip as it comes because my pay varies month to month, could that mean a rebate the following month automatically or just less tax charged to level things out?

Any help would be greatly appreciated as this is concerning me as I have things coming up this next year that the month can really help with.

Kind regards

Lee

Dazed_and_confused · 11 February 2019 at 1:11PM

New tax year will revert to a cumulative tax code so any overpaid 40% tax in April will be adjusted for in May (and following months if necessary).

Renegadecrab · 11 February 2019 at 1:15PM

Hi, thank you for the quick response.

So if I was receiving my first months pay in the new year and it was circa £16000 (taxed to around £9700 by my calculations) then when the next pay comes in nearer to £2000 I should see an adjustment in what I am taxed to account for the fact month one was a one off?

I was hoping it would be painfully obvious I don't earn anywhere near that and therefore could be inline to receive a few thousand relatively quickly. I am keen to put the money away into savings ASAP and know where I stand rather than have to try and claw it back across the whole year.

So essentially I could receive a healthy amount in May or June back through my pay automatically?

Sorry for my ignorance.

polymaff · 11 February 2019 at 1:50PM

Renegadecrab wrote: »

If it could come in March I thought that i might be taxed more leniently as it still would unlikely take me into the 40% bracket and would hope I wouldn't lost too much of it.

If it comes in April, will I be taxed a large amount and then have to wait until the next tax year to potentially receive a rebate for PAYE assuming I am going to be earning a fortune next year?

It'll be taxed in the tax year in which it is paid - period.

molerat · 11 February 2019 at 2:41PM

As a rough example (using 2018 tax data as that is how my spreadsheet is set up) if you normally earn £2K per month and receive a £15K bonus in April you would pay £6K tax in April, a refund of £345 in May, a refund of £170 each month Jun - Nov and start to pay tax again in December. Your total tax paid through PAYE for the year would be £5428 even though £6005 was taken in April.

chrisbur · 11 February 2019 at 3:15PM

Renegadecrab wrote: »

My tax code recently changed to one that supposedly looks at each payslip as it comes because my pay varies month to month, could that mean a rebate the following month automatically or just less tax charged to level things out?

If you are referring to a non-cumulative tax code often called a month 1 code this is not likely to have been issued because your "pay varies month to month". A cumulative tax code is ideal for dealing with pay that varies and a non-cumulative code is likely to result in the wrong tax deduction if there was a large variation for example your bonus was paid in month 12 of this year.
What details were given on your tax code advice?

Renegadecrab · 11 February 2019 at 3:42PM

Hi again and thank you for the advice so far.

My code is below according to HMRC website.

Your tax code for PROPERTIES is 695LX
- L = You are entitled to the standard tax-free Personal Allowance. Your tax code will be updated automatically if the Personal Allowance changes.
- X = The definition of this part of your tax code is as follows: Your tax is based on your pay in each pay period, not the whole year. This stops you paying too much tax in one go. Your payslip or pension statement could show this as W1/M1, or week1/month 1.

The X part made me think that I might not necessarily be paying the higher amount....

Thanks again!

[Deleted User] · 11 February 2019 at 5:30PM

Renegadecrab - You may wish to remove the name of your employer from your post?

Renegadecrab · 11 February 2019 at 5:34PM

Thank you, I have edited that.

chrisbur · 11 February 2019 at 6:07PM

Renegadecrab wrote: »

Hi again and thank you for the advice so far.

My code is below according to HMRC website.

Your tax code for PROPERTIES is 695LX
- L = You are entitled to the standard tax-free Personal Allowance. Your tax code will be updated automatically if the Personal Allowance changes.
- X = The definition of this part of your tax code is as follows: Your tax is based on your pay in each pay period, not the whole year. This stops you paying too much tax in one go. Your payslip or pension statement could show this as W1/M1, or week1/month 1.

The X part made me think that I might not necessarily be paying the higher amount....

Thanks again!

Definitely a non-cumulative tax code. Probably because HMRC have reduced your tax code for some reason, possibly from the standard 1185L.
When they talk of "This stops you paying too much tax in one go" they are referring to the affect this reduction would have on your first payday after the new code was applied. If it was applied on a cumulative basis your tax due on the first payday after it was applied would be far higher as the tax owed would be backdated to the start of the tax year.
In your case if you were to get your bonus in this tax year the tax deducted would be far higher than if you were on a cumulative tax code.

Renegadecrab · 11 February 2019 at 6:20PM

OK, I think that makes sense.

I changed jobs and at the beginning of the year has a company car so my allowance was reduced when I changed jobs I believe.

It looks like it will come through in April's pay from what I can see so your post makes me think that I will be on a healthier tax code due to the full allowance and therefore get taxed less than were it in March's pay.

End of tax year and incoming bonus

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