PAYE over £100k (may contain moasting)

[Collectingbrass]

I am in the fortunate position to be earning over £100k this year, as a result of an end of year bonus due in March payroll. How likely will it be that my PAYE calculation will be correct and I will not need to worry about paying any additional tax later, as HMRC have asked for a tax return?

I already pay tax at 40%, work for a large national company whose payroll team should know what they are doing and I have no other sources of income.

[bogie]

Should be fine on PAYE then. You normally have to do self assessment for over £100k earnings if on PAYE.

I do my SA return every year when I get my P11D (benefits statement) and end of year P60. Usually in May-June, the tax man always owes me money or should I say I like to manage it that way.

I have variable business expenses for office, business mileage, charity donations, pension contributions etc. HMRC will try to accommodate all this into your tax code and send you a new coding notice after doing your tax return. Unless you know its going to be exactly the same each year, its a good idea to reduce your tax allowance down a bit, call them, explain you might not have the same expenses next year, knock a couple of grand off and they will send you a new (lower) coding notice. (if you dont have any variable expenses then no need to do anything)

I always prefer to run a bit in credit, or know HMRC are going to owe me a bit back each year, rather than have an unknown bill to look forward to. Knowing you have a "bonus" to come back gives you the incentive to complete your Self Assessment as soon as you can each year

The effective tax rate between £100 and £120K is over 60% due to loss of personal allowance. If you can "manage to get by" on your regular salary its most tax efficient just to start putting more in your pension ....well, at least for now it is ......

[edc]

Regardless of the salary threshold level if you have during the year any changing pension contribution, change in premium for p11d items, change in company car, then the likelihood is that they will need to adjust your tax code.

[Collectingbrass]

bogie said:

The effective tax rate between £100 and £120K is over 60% due to loss of personal allowance. If you can "manage to get by" on your regular salary its most tax efficient just to start putting more in your pension ....well, at least for now it is ......

This is the bit I am bothered about. Normal salary is far less than £100k, but the bonus may push the annual gross just over £100k. As my ex gets a proportion of the net bonus in maintenance - don't ask, just keep it zipped - I don't want to give her the normal share of the net I receive at the end of March then get walloped for an additional tax bill later. I won't be able to recoup "her share" of any additional tax due as this is the last year maintenance is payable fortunately.

Nothing is changing on the P11D.

Edited by Collectingbrass on Tuesday 23 February 15:22

[theboss]

As bogie says the upper most slice of your income (anything between £100-120k) is going to be subject to 60% effective tax rate; combined with the 'ex tax' it sounds like you will see very little in your pocket.

Maybe worth speaking to the employer and seeing if some of the bonus could instead be paid as an employer contribution to your pension?

[jonah35]

Collectingbrass said:

I am in the fortunate position to be earning over £100k this year, as a result of an end of year bonus due in March payroll. How likely will it be that my PAYE calculation will be correct and I will not need to worry about paying any additional tax later, as HMRC have asked for a tax return?

I already pay tax at 40%, work for a large national company whose payroll team should know what they are doing and I have no other sources of income.

I think you will owe tax as you will be taxed at 40% whereas some should really be taxed at 60%. Therefore anything over £100-120k will need another 20% paid via self assessment

[jonah35]

jonah35 said:

Collectingbrass said:

I am in the fortunate position to be earning over £100k this year, as a result of an end of year bonus due in March payroll. How likely will it be that my PAYE calculation will be correct and I will not need to worry about paying any additional tax later, as HMRC have asked for a tax return?

I already pay tax at 40%, work for a large national company whose payroll team should know what they are doing and I have no other sources of income.

I think you will owe tax as you will be taxed at 40% whereas some should really be taxed at 60%. Therefore anything over £100-120k will need another 20% paid via self assessment

Your tax code will still give you the same personal allowance you've had all year whereas it shouldn't really if you think it through

[SidJames]

bogie said:

The effective tax rate between £100 and £120K is over 60% due to loss of personal allowance. If you can "manage to get by" on your regular salary its most tax efficient just to start putting more in your pension ....well, at least for now it is ......

and don't forget the extras that get converted to cash. I have over £10 k including the car.

[bogie]

jonah35 said:

jonah35 said:

Collectingbrass said:

I am in the fortunate position to be earning over £100k this year, as a result of an end of year bonus due in March payroll. How likely will it be that my PAYE calculation will be correct and I will not need to worry about paying any additional tax later, as HMRC have asked for a tax return?

I already pay tax at 40%, work for a large national company whose payroll team should know what they are doing and I have no other sources of income.

I think you will owe tax as you will be taxed at 40% whereas some should really be taxed at 60%. Therefore anything over £100-120k will need another 20% paid via self assessment

Your tax code will still give you the same personal allowance you've had all year whereas it shouldn't really if you think it through

The reduction in personal allowance when over £100k is done on a sliding scale, so it really depends on just how much you earn over £100k. Likely this will be sorted out in retrospect in the self assessment i.e. you owe some extra tax at year end unless there are other reasons for HMRC to send you a new code before year end (you could call them and explain about the bonus)

If possible I would just pay it into your pension and claw some of that tax back

[Vroom101]

Collectingbrass said:

I already pay tax at 40%, work for a large national company whose payroll team should know what they are doing

That's the same situation as me, but our payroll dept doesn't know its arse from its elbow! Size is no indication of ability!

[bogie]

Vroom101 said:

Collectingbrass said:

I already pay tax at 40%, work for a large national company whose payroll team should know what they are doing

That's the same situation as me, but our payroll dept doesn't know its arse from its elbow! Size is no indication of ability!

Most will just be using software or even outsourcing the whole service. I used to be in payroll in the 80s for a couple of years so do keep up with the basics. Its always good to understand how you get paid

One thing many misunderstand, is that the person responsible to make sure that you pay the correct tax, and your tax code is correct, is you. HMRC send you a note to explain it, you either agree or query it. Then they send it to your employer, they put the code in the computer and it does the maths. Your employer does not not why you pay the tax you do, only you and HMRC know that.

[edc]

For most the tax code is not manually input. It's either direct feed in or mass upload. I agree though that most employees make the assumption that if their pay is "wrong" then the payroll team have messed up. Most of the queries I have seen are nearly all attributable to tax code issues which the employee can influence not the employer.

[Vroom101]

bogie said:

Most will just be using software or even outsourcing the whole service. I used to be in payroll in the 80s for a couple of years so do keep up with the basics. Its always good to understand how you get paid

One thing many misunderstand, is that the person responsible to make sure that you pay the correct tax, and your tax code is correct, is you. HMRC send you a note to explain it, you either agree or query it. Then they send it to your employer, they put the code in the computer and it does the maths. Your employee does not not why you pay the tax you do, only you and HMRC know that.

To be fair, I've never had an issue with my tax code. It's not changed for years. I don't get any benefits at work, no company car or bonuses or anything. Only have a company pension.

Our payroll dept has issues just paying you for the hours you've worked, or for the holiday pay you're owed. They sometimes even pay you for holiday you haven't taken!
Only upside is that the company pays us weekly, so at least we spot mistakes pretty soon. It does feel like we're still in the dark ages though - we still use clocking cards and until a few years ago still had a mechanical clock machine. It was like something from the opening credits of the Flintstones!

• Sorry for the slight thread hijack.

[Eric Mc]

bogie said:

One thing many misunderstand, is that the person responsible to make sure that you pay the correct tax, and your tax code is correct, is you. HMRC send you a note to explain it, you either agree or query it. Then they send it to your employer, they put the code in the computer and it does the maths. Your employer does not not why you pay the tax you do, only you and HMRC know that.

HMRC sends out two versions of the coding notice - a detailed one to the employee and a simple one (with no details apart from the code itself) to the employer.

You are correct in that HMRC expects employees to know and understand their code - and they also expect the employee to notify HMRC if the employee does not think the code is correct.

My experience is that around 90% of the workforce do not have a single clue how the PAYE Coding system works - which is a pretty dreadful state of affairs.

Do youngsters get any instruction on how PAYE works when they are at school?

I know that when I was at school in Ireland in the 1970s we got some basic education on PAYE etc in our final year. All it takes is an hour or so of explanation.

[Vroom101]

Eric Mc said:

My experience is that around 90% of the workforce do not have a single clue how the PAYE Coding system works - which is a pretty dreadful state of affairs.

Do youngsters get any instruction on how PAYE works when they are at school?

I know that when I was at school in Ireland in the 1970s we got some basic education on PAYE etc in our final year. All it takes is an hour or so of explanation.

Hi Eric.

I left school in 1994 and we had absolutely no education in anything like PAYE or tax codes. I then did two years at college and it also wasn't mentioned there. When I joined my current employer as an apprentice in 1996, they didn't say anything about tax codes then either.

I'm ashamed to say I still don't know for certain exactly how it all works. I think that mainly because I've always thought that my code 'looked' right, and was similar or the same as my work colleagues who are on the same pay as myself, I've assumed it's been correct. When I eventually earned enough to be in the 40% tax band I was sent Self Assessment forms, but that stopped a few years ago, I would imagine because I don't claim for any business expenses or anything like that.

Do you have any good links that would enlighten me as to the ways of the tax code (preferably written in plain English )?

[Eric Mc]

No really, apart from maybe Pistonheads .

Here's HMRC's explanation -

https://www.gov.uk/tax-codes/overview

[DavidJG]

I have a similar issue. If I do well, bonuses take me well over 100k. However, my tax code doesn't get magically adjusted at this point. After completing a tax return, you'll need to make a payment to HMRC for tax owed on payment over 100k.

[Vroom101]

Thanks Eric you're a star. I've had a quick look and it looks like my Tax Code is different from what I was expecting. I assumed it would be 1060L, but it is in fact 1069L. I've no idea why

Bringing it back to the OP's query (wow, thread rescue!), the page on income over £100k has this to say:


"Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £121,200 or above."

Doesn't this mean that next (tax) year the OP's tax code will be screwed up as HMRC will assume that he is now being paid over £100k a year and adjust it accordingly? Or am I not understanding it properly?

[blueg33]

jonah35 said:

Collectingbrass said:

I am in the fortunate position to be earning over £100k this year, as a result of an end of year bonus due in March payroll. How likely will it be that my PAYE calculation will be correct and I will not need to worry about paying any additional tax later, as HMRC have asked for a tax return?

I already pay tax at 40%, work for a large national company whose payroll team should know what they are doing and I have no other sources of income.

I think you will owe tax as you will be taxed at 40% whereas some should really be taxed at 60%. Therefore anything over £100-120k will need another 20% paid via self assessment

This is my experience. the first time my bonus took me over £100k I was hit quite hard, basic is now well over £100k and bonus on top, I still have to write a cheque in January for £4 -6k depending on what the bonus looked like

[bogie]

Eric Mc said:

bogie said:

One thing many misunderstand, is that the person responsible to make sure that you pay the correct tax, and your tax code is correct, is you. HMRC send you a note to explain it, you either agree or query it. Then they send it to your employer, they put the code in the computer and it does the maths. Your employer does not not why you pay the tax you do, only you and HMRC know that.

HMRC sends out two versions of the coding notice - a detailed one to the employee and a simple one (with no details apart from the code itself) to the employer.

You are correct in that HMRC expects employees to know and understand their code - and they also expect the employee to notify HMRC if the employee does not think the code is correct.

My experience is that around 90% of the workforce do not have a single clue how the PAYE Coding system works - which is a pretty dreadful state of affairs.

Do youngsters get any instruction on how PAYE works when they are at school?

I know that when I was at school in Ireland in the 1970s we got some basic education on PAYE etc in our final year. All it takes is an hour or so of explanation.

Yes, agreed, the PAYE system seems like a mystery to many otherwise well educated employees.

There is little real world financial education at school whatsoever, certainly not what I can remember from when I left in the mid 80s. I was fortunate to get a job in the local councils payroll dept early in my career and gain an understanding.

Im sure there could be more to educate school leavers about general finance; PAYE, mortgages, loans, credit cards, basic personal finance management