Monthly income deductions - is this right?
Discussion
Hi all,
I earn about 22k a year basic pay (£1833/month), and a bonus 3 times a year (no I have no idea why it's not 4 either...).
This means on a typical month I pay £175 income tax, £138 NI, £18 into my pension (currently), and £31 off my student loan. In total £362 of deductions.
In January I got a 2k bonus (£500/month for 4 months), and paid £575 income tax, £370 NI, £38 into my pension, and £211 off my student loan. In total £1194 of deductions, £832 more than a typical month.
My employers accountant says that the level of income tax that month is about right, so I will not get a rebate, and none of the other deductions are in any way recoverable.
I'm due another bonus this month, expecting around £3200. I understand the more I earn the more NI and income tax I have to pay, but I found it quite hard to swallow over £830 more in deductions in January (as it doesn't or shouldn't push me into the higher rate bracket in the tax year as a whole) and it looks like it'll be even worse this month. I don't know for sure, but I think if my bonus were paid monthly, I would not be stung anywhere near as hard overall at the end of the tax year.
This is my first full time job since graduating from university, and I am not totally sure how the system works. Can anyone advise?
Thanks very much.
I earn about 22k a year basic pay (£1833/month), and a bonus 3 times a year (no I have no idea why it's not 4 either...).
This means on a typical month I pay £175 income tax, £138 NI, £18 into my pension (currently), and £31 off my student loan. In total £362 of deductions.
In January I got a 2k bonus (£500/month for 4 months), and paid £575 income tax, £370 NI, £38 into my pension, and £211 off my student loan. In total £1194 of deductions, £832 more than a typical month.
My employers accountant says that the level of income tax that month is about right, so I will not get a rebate, and none of the other deductions are in any way recoverable.
I'm due another bonus this month, expecting around £3200. I understand the more I earn the more NI and income tax I have to pay, but I found it quite hard to swallow over £830 more in deductions in January (as it doesn't or shouldn't push me into the higher rate bracket in the tax year as a whole) and it looks like it'll be even worse this month. I don't know for sure, but I think if my bonus were paid monthly, I would not be stung anywhere near as hard overall at the end of the tax year.
This is my first full time job since graduating from university, and I am not totally sure how the system works. Can anyone advise?
Thanks very much.
Edited by hideme22 on Friday 25th May 16:40
The earlier one looks about right to me. It helped being paid near the financial yesr end.
This one will be worse initially. The payroll programme will assume you will earn the bonus for every month of the rest of the tax year which will trip you into 40% tax for the month.
Next month when it finds you dropped back to basic pay only it will start to drip feed back the overpaid tax over the rest of the tax year.
This will happen every time you receive a bonus until the assumption of continued payments results in remaining in the 20% band.
Bit of a pain but it will sort itself by your last pay in the year.
This one will be worse initially. The payroll programme will assume you will earn the bonus for every month of the rest of the tax year which will trip you into 40% tax for the month.
Next month when it finds you dropped back to basic pay only it will start to drip feed back the overpaid tax over the rest of the tax year.
This will happen every time you receive a bonus until the assumption of continued payments results in remaining in the 20% band.
Bit of a pain but it will sort itself by your last pay in the year.
I will try to explain! Ignoring pension which is relatively small, there are three main deductions:
1. Tax - calculated cumulatively each month within a tax year - so if you had very high income in one month you might have to pay some tax at 40% but if your total income over a tax year is below 40% threshold you’d get the excess back. From your figure it sounds like a 20% rate is what you are paying on extra pay.
2. Student loan - I think this is deducted at 9% above a certain threshold. I think it is done separately each month so not cumulatively like tax
3. National insurance - 12% of pay above the primary threshold (8400 pa or 700 a month ish) until you get to the upper earnings limit which is same as 40% tax limit.
Adding those three together you would have deductions totalling 41% or any bonus. Does that explain it?
1. Tax - calculated cumulatively each month within a tax year - so if you had very high income in one month you might have to pay some tax at 40% but if your total income over a tax year is below 40% threshold you’d get the excess back. From your figure it sounds like a 20% rate is what you are paying on extra pay.
2. Student loan - I think this is deducted at 9% above a certain threshold. I think it is done separately each month so not cumulatively like tax
3. National insurance - 12% of pay above the primary threshold (8400 pa or 700 a month ish) until you get to the upper earnings limit which is same as 40% tax limit.
Adding those three together you would have deductions totalling 41% or any bonus. Does that explain it?
We usually get a bonus paid in our April pay packet and my take home pay usually takes a few months to settle down, with over-paying tax/NI, then under paying to balance it out.
I find that the "Salary calculator" website is good at explaining what you can expect to see in your pay packet.
I find that the "Salary calculator" website is good at explaining what you can expect to see in your pay packet.
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