One-Off Bonus PAYE

TBSC5000 · 14 September 2018 at 10:15AM

Good Morning all.

Salary: £51,500
Salary Sacrifice Pension @11%
Student Loan (scheme 1), started in 2007
One-Off Bonus of £6000
take-home pay after all deductions (non bonus month): circa 2450
TC: 1185L

I am receiving a one-off bonus next month due to a work take-over, and have been told quite a few times that from a tax perspective "you will end up having paid the right amount of tax at the end of the tax year". I have been contributing quite heavily to my pension to try and keep myself in the 20% tax bracket as much as possible, but the bonus will obviously push into that boundary.

My questions are:

(1) How will I be taxed on the bonus month, will I just pay 40% on it all?
(2) How would PAYE ensure that I have paid the 'right' tax at the end of the year, is that likely to be a rebate or is it blended into the remaining months? (I've been told it sorts itself out, but I'm not sure how that happens)
(3) any specific advice on how to manage the taxes on this?

Many thanks in advance all - much appreciated :j

agrinnall · 14 September 2018 at 10:26AM

From your figures you might just be below the threshold for higher rate tax, but the bonus will certainly push you over. Most, if not all, of it will be taxed at 40% in the month that it's paid. If there is any rebate due because you've overpaid it will come back in the subsequent months, and will be fully returned either by your last pay of the tax year or earlier. But the amount of rebate is likely to be small and probably not worth worrying about too much. The good thing is that you'll only pay 2% NI on the bonus as you're already above the Upper Earnings Limit.

Linton · 14 September 2018 at 12:22PM

The way PAYE normally works if you are paid monthly is that at the end of month N your total income to date is assessed against N/12 of your tax allowance and the tax bands to determine the tax you should have paid up to month end. The tax you have actually paid up to the end of the previous month is then deducted from this figure to give you the tax due this month.

This usually works well but large bonus's will generally lead to excess tax being taken. For example if you had received your bonus in April the calculation against 1/12 of the tax allowance and tax bands would lead you to be taxed as if your income was above £100K. However in May your total income to date would be less than 2/12 of £100K so you would be taxed at a lower rate and some of the excess tax paid in April would be refunded. This reduction would continue each month until or before the end of the year by which time your tax paid would be correct.

Lotak · 14 September 2018 at 4:20PM

TBSC5000 wrote: »

Good Morning all.

Salary: £51,500
Salary Sacrifice Pension @11%
Student Loan (scheme 1), started in 2007
One-Off Bonus of £6000
take-home pay after all deductions (non bonus month): circa 2450
TC: 1185L

I am receiving a one-off bonus next month due to a work take-over, and have been told quite a few times that from a tax perspective "you will end up having paid the right amount of tax at the end of the tax year". I have been contributing quite heavily to my pension to try and keep myself in the 20% tax bracket as much as possible, but the bonus will obviously push into that boundary.

My questions are:

(1) How will I be taxed on the bonus month, will I just pay 40% on it all?
(2) How would PAYE ensure that I have paid the 'right' tax at the end of the year, is that likely to be a rebate or is it blended into the remaining months? (I've been told it sorts itself out, but I'm not sure how that happens)
(3) any specific advice on how to manage the taxes on this?

Many thanks in advance all - much appreciated :j

1) You will pay tax at the marginal rate based on your income for that month with all allowances and tax brackets at 1/12th of the annual allowance. This means you will definitely pay tax at the 40% bracket for that amount. If you do a self-assessment, this will correct itself when you submit your tax return. If you do not do a self-assessment, it *should* correct itself, but, what with HMRC being HMRC, I wouldn't hold my breath. You'd have to contact them. Good luck with that. However ....
2) This happened to me once, and in one month the amount of tax I paid plummeted. I can't remember the reason for it though, which is really annoying.
3) Given that you post-sacrificed salary is £45,835, you've got no headroom in the 20% bracket. You have two options really:
1) Suck it up and take the 40% hit
2) Put more money into your pension (in excess of the 11% in the bonus month).

Dazed_and_confused · 14 September 2018 at 5:19PM

1) You will pay tax at the marginal rate based on your income for that month with all allowances and tax brackets at 1/12th of the annual allowance. This means you will definitely pay tax at the 40% bracket for that amount. If you do a self-assessment, this will correct itself when you submit your tax return. If you do not do a self-assessment, it *should* correct itself, but, what with HMRC being HMRC, I wouldn't hold my breath. You'd have to contact them. Good luck with that. However ....
2) This happened to me once, and in one month the amount of tax I paid plummeted. I can't remember the reason for it though, which is really annoying.
3) Given that you post-sacrificed salary is £45,835, you've got no headroom in the 20% bracket. You have two options really:
1) Suck it up and take the 40% hit
2) Put more money into your pension (in excess of the 11% in the bonus month).

Utter rubbish 1. The op has said they are on code 1185L, no mention of it being week1/month1 basis so as previous posters have explained it will automatically correct itself during the course of the year.

Utter rubbish 2. HMRC are not involved in this and have no need to be. The employer operate PAYE using the code issued and correct tax is deducted each month.

dori2o · 15 September 2018 at 12:07PM

Are you going to make additional pension contributions to keep your total taxable income (including bonus) below the £46350 higher rate threshold?

If so, and the additional contribution will not be taken from your net salary (i.e. before tax is deducted) then as long as you know what the additional contribution will be then you can call HMRC and tell them that you will be making the contribution and have your tax code adjusted to give you any additional relief due.

If this will be a one off situation just let them know and they will ensure the relief doesn't continue into the next tax year.(potentially leading to an underpayment in future years)

If you will be making additional contributions directly via your salary, and the contribution will be taken before your salary is taxed, then you will automatically be given the relief due with no need to contact HMRC.

One-Off Bonus PAYE

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