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Anne T
Anne T, Accounts & Tax
Category: UK Tax
Satisfied Customers: 151
Experience:  ACCA, ATT
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How much tax and NI should I pay on a bonus?

Customer Question

Hi, my annual PAYE salary is £35,700, I have a company car and a fuel card (unlimited option), putting all that aside, my tax code is K192. I expect a 20% bonus in June that is £7,140. I just wondered what I would see net? A tax calculator that is spot on regards ***** ***** monthly/yearly net is:

Regards ***** ***** it says : From your basic pay, you earned £35,700.00 in the 2010/2011 Tax Year, on which you were taxed £7,568.00 and paid National Insurance of £3,297.80 With your bonus of £7140, your new Annual Gross Income would be £42,840.00 You would owe additional tax of £2,856.00 You would owe additional National Insurance of £785.40 My question is...In anticipation of when I get paid my bonus in June/July for £7,140 gross, will I see only £3,499 NET pay? I don’t have any other pay packet detail with me, but that tax calculator is correct if you input k192 code net = £2,069, would like to get a rough idea today, let me know. Thank you.

Submitted: 6 years ago.
Category: UK Tax
Expert:  Anne T replied 6 years ago.

Unfortunately, it is correct. You will be in the worst tax position possible, where your earnings are taxed at 40%, and national insurance is due at 11%. Sorry.

Customer: replied 6 years ago.

Is there any way to improve the tax position, or can nothing be done due to it being a medium size business and I’m on PAYE payroll?

Expert:  Anne T replied 6 years ago.

As it will be taxed through PAYE, no improvement can be made on this basis, however, if you pay pension contributions, you can claim 25% of the payment you make as a tax refund on your tax return. For example, if you made pension contributions of £400 per month throughout the 2011/12 tax year, and have earnings & bonus as detailed, you can opt to complete a tax return for the year and this will give you a tax refund of £1,200, as the pension payments increase your basic rate band, meaning you pay tax at 20% instead of 40% on the additional income. If you pay contributions through a payroll-based scheme, this should be dealt with automatically through PAYE. This will depend on the company's willingness to run this.

Alternatively, could the bonus be paid directly into your pension scheme as an employer contribution? The full amount would be paid in with no tax or national insurance deducted.

If you are a shareholder, you could receive it as a dividend, which would save you National Insurance, but you would still end up paying tax at 32.5%, rather than 40%.

Customer: replied 6 years ago.

As I get paid in June, only 3 months into 11/12 tax year do you think I will get the bonus at 20% as I would not have been paid over the threshold in the new tax year yet, and then pay the difference as lump sum when a tax calculation is done at end of year? or be spread over my pay in 12/13?

Expert:  Anne T replied 6 years ago.

Although it's paid only 3 months through the tax year, the PAYE system works by splitting the annual limits into monthly limits for people paid monthly. Therefore, it should take 40% on the bonus payment, sorry.

If you subsequently were paid less in the year or stopped working, etc., the additional tax would be repayable, again, this would be done automatically through the PAYE system.