PAYE/Bonus question

PAYE/Bonus question

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Discussion

M511

Original Poster:

103 posts

87 months

Wednesday 5th April 2017
quotequote all
I have a question regarding how performance related bonuses get taxed. I have been offered a job paying £55K with a potential to get a 30% bonus at the end of the year.

Using my crude calculations I have worked that this would be a bonus of £16.5K.

The question I have is how will this get taxed? I have tried to use various tax calculators online and my interpretation of the results is below

Take home is £2.9K normally but if I got the bonus monthly (16.5/12= 1.37K)
The take home equivalent pay with the bonus would be £3.6K

I then took the difference between the bonus take home and normal take home giving me £674 extra a month. (674/1375=0.49)
So in reality that 16.5k would be taxed by 49%?

Can anyone help please? beer

Eric Mc

122,010 posts

265 months

Wednesday 5th April 2017
quotequote all
Try this free calculator.

Enter in the various amounts in the boxes on the left and the annual/monthly/weekly results appear in the boxes on the right.

Make sure you enter in the correct Tax Code details.

https://listentotaxman.com/

tankplanker

2,479 posts

279 months

Wednesday 5th April 2017
quotequote all
How it worked for me the last couple of years is that the Tax office and my employer have obviously spoken as my tax code for the year was based on my salary and bonus. My bonus pushes me into a T tax code, I'm nowhere near without it, and as the bonus is paid in March but the tax code was issued the previous April they must have spoken. So I paid more tax over the year as I had a lower allowance, then when the bonus came that was taxed on my normal rate.

With the amounts you are talking about you won't be anywhere near close to the next tax code. However if you have children and currently claim child benefit then the bonus will take you over the £60k limit for completely stopping child benefit. You can leave it till the bonus is paid then pay back the child benefit but personally I would tell them up front.

M511

Original Poster:

103 posts

87 months

Wednesday 5th April 2017
quotequote all
Eric Mc said:
Try this free calculator.

Enter in the various amounts in the boxes on the left and the annual/monthly/weekly results appear in the boxes on the right.

Make sure you enter in the correct Tax Code details.

https://listentotaxman.com/
Hi Eric thanks for this, but I cant see the option for calculating tax on bonus?

This site provides this but its not really clear...
http://www.thesalarycalculator.co.uk/salary.php

Sarnie

8,044 posts

209 months

Wednesday 5th April 2017
quotequote all
M511 said:
Hi Eric thanks for this, but I cant see the option for calculating tax on bonus?

This site provides this but its not really clear...
http://www.thesalarycalculator.co.uk/salary.php
You don't get taxed individually on the bonus, you would be taxed on the total earned for each month......the make up of salary/bonus is irrelevant.....

Eric Mc

122,010 posts

265 months

Wednesday 5th April 2017
quotequote all
Just insert the total salary amount - whether it includes the bonus or not.

If the annual salary is £40,000 without the bonus, place £40,000 in the Gross Salary box.

If the Salary is £60,000 WITH the bonus - insert £60,000 in the Gross salary box.

Simples.

You can do an infinite number of calculations as you try all the permutations.

STURBO

322 posts

160 months

Wednesday 5th April 2017
quotequote all
Eric Mc said:
Just insert the total salary amount - whether it includes the bonus or not.

If the annual salary is £40,000 without the bonus, place £40,000 in the Gross Salary box.

If the Salary is £60,000 WITH the bonus - insert £60,000 in the Gross salary box.

Simples.

You can do an infinite number of calculations as you try all the permutations.
Eric, does it make a difference with NI since this is calculated monthly. So if the bonus is paid in just one month there may be a NI saving that wouldn't be the case if the bonus was paid over the year?

I seem to recall that being the case years ago but not sure how it's calculated now.

Eric Mc

122,010 posts

265 months

Wednesday 5th April 2017
quotequote all
It can.

But the calculator will work OK on an annual basis.

schmunk

4,399 posts

125 months

Wednesday 5th April 2017
quotequote all
http://www.thesalarycalculator.co.uk/salary.php

This one allows you to put in an annual bonus and shows the different PAYE and NI for that month.

MOBB

3,609 posts

127 months

Thursday 6th April 2017
quotequote all
Using this http://www.thesalarycalculator.co.uk/salary.php

Take home £55k = £3306 pm
Take home £71.5k = £4104 pm

Net difference £798 pm x 12 months = £9,576 - so 58% of the gross bonus

Which sounds correct as it would be 40% tax on the bonus (as you are in higher rate) and 2% employee's NIC too

If your current take home is different to the above it could be down to tax code, deductions, pension etc



Edited by MOBB on Thursday 6th April 11:59


Edited by MOBB on Thursday 6th April 12:00

mfmman

2,388 posts

183 months

Friday 7th April 2017
quotequote all
tankplanker said:
With the amounts you are talking about you won't be anywhere near close to the next tax code. However if you have children and currently claim child benefit then the bonus will take you over the £60k limit for completely stopping child benefit. You can leave it till the bonus is paid then pay back the child benefit but personally I would tell them up front.
You could do that but I think the ability to claim child benefit is not retrospective. So should no bonus be payable or the OP was to leave mid year and his yearly earning not hit the upper limit then some of all of the benefit would not need to be paid back. IIRC If you don't claim in the first place then it is lost regardless.

Eric Mc

122,010 posts

265 months

Friday 7th April 2017
quotequote all
The general advice is to continue to claim and receive Child Benefit even if you think that your's or your partner's income for the year will exceed the threshold where you might have to pay some or all of the Child Benefit back.

There are two main reasons why this is advised -

i) as stated above, for all sorts of reasons (no bonuses, redundancy, sickness etc ) the income may not actually go over the threshold. If you had cancelled the Child Benefit because you assumed you would have to pay it back, you are not allowed go back and claim the unpaid benefit.

ii) claiming Child Benefit allows the mother to have credits paid to her NI account for State Pension. If the Child Benefit is cancelled, no credits are paid. If the Child Benefit is paid but has to be refunded, the mother still receives the NI credits.

schmunk

4,399 posts

125 months

Friday 7th April 2017
quotequote all
Eric Mc said:
The general advice is to continue to claim and receive Child Benefit even if you think that your's or your partner's income for the year will exceed the threshold where you might have to pay some or all of the Child Benefit back.

There are two main reasons why this is advised -

i) as stated above, for all sorts of reasons (no bonuses, redundancy, sickness etc ) the income may not actually go over the threshold. If you had cancelled the Child Benefit because you assumed you would have to pay it back, you are not allowed go back and claim the unpaid benefit.

ii) claiming Child Benefit allows the mother to have credits paid to her NI account for State Pension. If the Child Benefit is cancelled, no credits are paid. If the Child Benefit is paid but has to be refunded, the mother still receives the NI credits.
Agreed on the first point, which is why I kept doing so for a couple of years after the change. I'm now resigned to the rules not suddenly changing back, and my earnings being too far above the limit, so have stopped.

On the second point, it is possible for the non-working spouse to register for the NI credits without physically receiving the child benefit - this is what I'm now doing.

Eric Mc

122,010 posts

265 months

Friday 7th April 2017
quotequote all
Many people failed to do that because they were completely unaware that there was a link between receiving Child Benefit and getting NI credits.

The government never mentioned this when they brought in the income caps for the receipt of Child Benefit.

tankplanker

2,479 posts

279 months

Friday 7th April 2017
quotequote all
I didn't know about the NI contributions, nor did I know that you couldn't claim it later. I cancelled mine as soon as the new rules came in force as I'm over the threshold with my basic salary. Wife works full time so I haven't lost out on the NI credits thankfully.

Eric Mc

122,010 posts

265 months

Friday 7th April 2017
quotequote all
Lucky you.

If the Mrs was a "stay at home mum" she could have lost out.

Zigster

1,653 posts

144 months

Friday 7th April 2017
quotequote all
I thought it was a little more complicated than that - you effectively claim the Child Benefit but waive your right to receive it so that you continue to get the NI credits?

Welshbeef

49,633 posts

198 months

Sunday 9th April 2017
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Remember also if you receive child benefit & you get 30% bonus you'll have to pay back the child benefit too.

JulianPH

9,917 posts

114 months

Sunday 9th April 2017
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M511 said:
I have a question regarding how performance related bonuses get taxed.
The same way as any/all income is taxed. There is no difference.

Welshbeef

49,633 posts

198 months

Sunday 9th April 2017
quotequote all
OP you will get to keep 58% of whatever bonus you are paid.

Also as stated previously IF you claim child benefit then you might also have to debate the entire value which is what £1.8k per child? Potentially the true net take home once benefits are taken into consideration might make you wince.