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Original poster

Tax advice/avoidance advice please on a 15k bonus for higher tax payer

37 replies

Oblomov · 18/02/2011 19:04

Just wondered if there was any advice really. Any legal ways round it. Tax efficent/ tax avoidance.
Dh just started new job. They have a big bonus on offer. achievable. But is there anything he could ask for , instead of this, to make it more efficient ?
I mean no one wants to lose 6k out of 15k and only end up with 9k. Especially when he has to work 18 hour days for the first 4 months plus, in order to get this.
They have offered him pension of him contributing £150 and them contributing £300. They have offered him BUPA highest healthcare cover. They suggested buying him a car outright, as the bonus. Is this tax efficient ?
Are there other ways that we can make use of, to not lose so much tax ?

OP posts:

HecateQueenOfWitches · 18/02/2011 19:07

oooooh, you're gonna get your arse handed to you, Ob.

Don't you know that as someone with actual honest to goodness money you should in fact be offering 3/4 of it to the government, not doing the morally bankrupt thing of actually trying to protect it!

Now, seriously, not a clue. I suggest you get an accountant. The fee you pay for their advice will be worth it based on what you'll save.

Original poster

Oblomov · 18/02/2011 19:20

Thanks Hecate. Ass kicked ? Great !!
Seriously. I need accountant advice ?

OP posts:

grumpypants · 18/02/2011 19:24

well, having a car bought outright would be subject to tax, based on value etc. I think you should def get some tax advice, but not sure where from, cheaply. I used to be in tax, but have given up so would hate to give you my out of date knowledge. BTW, I agree - dh loses 40% of any bonus. I just sigh and imagine the money floating off.

Quattrocento · 18/02/2011 19:30

Hi Oblomov

It's not possible, I'm afraid. Any receipt of assets or cash will be subject to income tax and NIC.

There used to be lots of spiffing schemes to avoid income tax and NICs, including paying people in gold bullion or some other tradeable commodity. All closed down.

The legitimate tax efficient thing to do might be to see if your DH can top up his pension contributions, Of course that does mean that you don't see any cash for a long time ...

Sorry to be the bearer of bad tidings

HecateQueenOfWitches · 18/02/2011 19:33

"Seriously. I need accountant advice ?"

well, I would. If anyone can advise you on the best way to manage your money, it's an accountant.

hogsback · 18/02/2011 19:40

Only tax efficient thing is pension. I get (in a good year) 60k of bonuses, options, stock and the like and pay 41% on the lot (40% tax and 1% NI). If you're on PAYE there's no way round it, and nor should there be.

Jareth · 18/02/2011 19:41

I reckon pension is the best option tbh.

PomonaTodd · 18/02/2011 19:46

Pension is the only way I think.

cakeretention · 18/02/2011 19:50

Could your DH take some extra days holiday instead of some of his bonus? If you would otherwise have to pay childcare then this would be very tax-efficient.

TheFowlAndThePussycat · 18/02/2011 19:51

You aren't losing the money, it is going to fund the public services you use & therefore benefit you in the widest sense.

Or so I told myself repeatedly when we got stung for capital gains last year .

hogsback · 18/02/2011 19:54

Oh forgot to add, childcare vouchers are tax efficient too, and as Cake suggested, buying back additional leave.

preghead · 18/02/2011 19:55

This is the norm, unfortunately - think of the amount now as net not gross i.e think what you will di with the 9K. AVCs into pensions is the only thing to do I think but, I prefer to spend the net 9K now

Original poster

Oblomov · 18/02/2011 19:57

Thanks for all the posts.
I did KNOW there was no round it. I don't know why I posted really. My best friend (accountant) says it is a nice position to be in, to be worrying about this, when last year he was made redundant and we were well worried. What she says is true. I wasn't actually complaining, if it sounded like I was !!

OP posts:

Honeydragon · 18/02/2011 19:58

\Yup, dh's bonus gets halved too for the greater good

and we do have a good accountant/mate who is scarily good.

He once got me a £78 rebate on a year I hadn't paid any tax at all

if he can't find away round it I figured it can't be done.

breatheslowly · 18/02/2011 20:05

If it is subject to NIC - which it will be unless he takes it as a pension contribution - then I think that NIC is going up by 1% in April - so taking it before then would help a little. What about charitable donations - you can give as you earn or claim the tax back on a tax return.

bethelbeth · 18/02/2011 20:11

We used to get childcare vouchers through work which took up part of your bonus and wasn't taxable...

Actually they had loads of options, the bonus wasn't so big but you could choose from crates of wine, magazine subscriptions, childcare, cinema passes(x100)... that's the ones that i can remember.

Might be worth seeing if your workplace would consider signing up to a similar scheme.

Chil1234 · 19/02/2011 11:15

I'm in the same situation. Nothing like as a big a bonus, worst luck, but hate seeing 40% of my extra, hard-earned money donated to HM Treasury. All you can do once you've got hold of it is try to avoid paying unnecessary tax on the balance and making it work for you as hard as possible... ISAs, pension contribs, clever investments etc.

Would recommend, if he doesn't already, doing an annual tax return. I'm on PAYE which you'd think would be straighforward but every time I submit my return I seem to get about £200 back overpayment...

Chil1234 · 19/02/2011 11:20

Should have added. In a previous employment, my bonus was paid not as cash but in shares. I had to hold onto them for 2 years before I could sell them but, once I did, they were not subject to income tax. That kind of thing requires decisions at board level and also assumes the company is publicly traded on the stock exchange...

gillybean2 · 19/02/2011 12:28

BTW your dh will be paying 40% tax on his medical benefit (and any other benefits he gets like a car). So giving him the highest level of that isn't saving him any tax if that was the impression...

As someone above said you have to think of the bonus as a Net amount (mentally deduct the tax on it). And in reality everyone pays 20% anyway so technically you're only paying an additional 20% of what you were already paying. Maybe thinking of it that way makes it easier to swallow...?

Lots of people (including me) survive on less income that your dh's bonus is. In fact my gross income is less than the net bonus you give (and yes I pay tax on it)! So can see why some say it's a nice problem to have.

Chil1234 · 19/02/2011 13:32

Basic rate may be 20% but once you hit the higher rate threshold, all earnings over that amount are taxed at 40%.... bonuses, interest on your bank account, any extra income at all. The soon-to-come tax-free earnings level of £10k won't apply to people on higher-rate. CB is going for people on higher-rate So you can find (as in my case) that the effective tax you are paying on all your income is well over 30%. Not so much a 'poverty trap' as a 'middle income tax trap'.

I've been thinking of changing careers recently and, because I'd be a rookie, my income would halve. But my take-home after tax, I calculated, with CB added back, would only drop by about 25% because of this very top-heavy tax system. The message is ... "if you work really hard we'll double your salary but only let you keep 30% of the extra".

Realise this can sound like 'rich people whining' but it does highlight how the current system really fleeces anyone on more than average wage.

waffleanddaub · 19/02/2011 22:54

Where's my bonus then?? I work hard. Many more hours than I'm paid for. I work in NHS ( no option in my profession to work privately ). Where is my bloody bonus!!

trixymalixy · 19/02/2011 23:04

Putting it into his pension is the only option I'm afraid.

hogsback · 20/02/2011 09:57

Waffle: it's really only possible to have variable compensation if you have a job that has measurable targets. If you overachieve on those targets you get more money, underachieve and you get less. If it's a sales job you will get fired after a couple of quarters underachieving, and of course if you overachieve your targets will be raised next year. A lot of jobs (and a lot of workers) simply aren't suited to this kind of pay structure.

Lougle · 20/02/2011 10:48

I don't know that it is fleecing. Does the person working 80 hours per week to keep the job that is contracted at 40 hours on Minimum wage work less hard than you?

Some jobs attract larger benefits for the same hours as other jobs. It may be argued that the skill set required is higher for those jobs, but if the person performing them has a higher ability, the effort is surely equitable? Both workers are working to the top of their ability and using the whole skill set available for them to complete their work.

In that scenario, surely, you can see that one person is being rewarded with £12,344 gross, so £10,441 net per year. The other is being rewarded with a £60,000 bonus wage, which means that they get £35,400 net, more than 3X the annual wage of the first man, as a bonus. Hardly something to complain about, imo.

WhatsWrongWithYou · 20/02/2011 10:59

DH has been on a bonus scheme for as long as I can remember, and we've always had to mentally shrug off the amount going in taxes as par for the course.

In fact, his current employers are in the habit of paying it in two increments if it's over a certain amount, thus ensuring even more tax is ultimately paid.

Hogsback makes a good point about the other side of the coin of being lucky enough to be in a position to receive bonuses.

DH has put up with a lot of shit over the years because of the cut-throat mentality of some employers; when the recession hit several deals he'd been working on for a long time were summarily cancelled, leaving him anxious he'd be the first out when redundancies hit.

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