Tax on bonuses - flat rate equivalent

[Mumsanetta]

Please can I have some help with two questions.

1. I earn over £150k and have just completed my self-assessment which shows I owe £5k in tax. I have one job and on PAYE so wasn’t expecting to owe tax but turns out HMRC put me on the wrong tax code. I have not recently changed jobs. My employer is telling me that it’s not their fault and there’s nothing they can do about it and I haven’t been able to get through to HMRC to discuss what has happened and how I can avoid this happening in the future. Is a wrong tax code just human error? It doesn’t seem fair!
2. I am due to earn a bonus of £7.5k. I had ear marked it to fix my leaking roof but will need to apply it against the tax bill. Can anyone tell me what the flat rate of tax is on bonuses for high earners? Google tells me that I will pay the equivalent of 60% of tax on the bonus but that doesn’t seem right.

1. Tax codes are issued by HMRC, there is nothing your employer can do. You need to check the tax code on your payslip to ensure it doesn't happen again and if you are on the wrong tax code, then you need to contact HMRC, explain your circumstances and ask them to amend it. They will then inform your employer of a new tax code, and then your employer can update their payroll system. On over £150k you should be on a tax code of 0T or if you have benefits or other income, it would start with a K
2. You will pay 45% tax and 2% National insurance, plus any pension adjustment. So you will take home £7.5k - £3,375 tax - £150 NI and any pension adjustment

You don't need to do self assessment if you have one job and all of your income is PAYE.
If you declared your bonus as additional income then HMRC will tax you on it - but you'll have already paid it surely?

You do if your income is over £100k for the year ended 5 April 2023

@PickledPurplePickle apologies, I didn't realise. Ignore me!

@PickledPurplePickle thank you. My tax code is currently 1040T so I think it’s correct for this tax year but I will call HMRC and find out. Hopefully they won’t try to take the overpayment in one go.

I don’t understand how I can earn so much money and yet feel like I don’t have enough money but I suppose that’s for another thread!

If you earn over £100k tax paid by paye is not accurate. There may be benefits to be taken and additional tax liability on the income.

Put your hard hat on now OP. This type of comment never ends well on MN even if it is your reality.

If you submit your tax return before the end of Dec, I think you can select to pay back through your tax code next year.
IIRC you have to meet certain criteria and it may be for amounts £5k and under

Is £150k your gross income or after pension contributions etc? If you are paying a lot into a pension then you may still be in the zone where you have some personal allowance (c100-125k). The bonus would then have an effective 60% tax rate (62% inc NI) as it would also lose sone of your personal allowance. That is probably where the 60% figure you have found comes from.

@LIZS my employer is registered with HMRC for payrolling benefits (I get PMI and life insurance through payroll) so I would have expected HMRC to still be aware of them but that clearly isn’t the case.

1040T is not correct. This means that you are still getting a tax code, which you are not entitled to at your level of income

Your code needs to be 0T or start with a K

HMRC have restricted phone lines until the end of January now, so it's best to do a request through your Government Gateway account.

It's for under £3k only

You will need to pay any tax you owe for the year ended 5 April 2023 by the 31 January 2024 - they won't take this automatically. If you can't pay it you will need to ask for a payment plan

For the current year, you will have the same issue, so get your tax code amended now - they might say it's too late to amend the current year though as there are only 3 payslips left

If they are payrolled, then HMRC are already aware of them and they are included in your P60

@Mia85 I earn £150k gross. Pension contributions are £520 pm and my employer pays £650 pm.

That's probably, but not necessarily correct. If the OP is making pension contributions greater than £25k they could, subject to other benefits (which the 'T'indicates might be relevant) still be entitled to some of the personal allowance.

The 1040 I think indicates that the OP still still has around £10k of personal allowance, so has 'lost' £2.5k. It's reduced by £1 for every £2 earned, so presumably is making £45k-ish of pension contributions. In which case any bonus will effectivley be taxed at 60% (plus an additional 2% NI) as google indicated

Edited to add that given the later post with the actual penson contributions then I also woudl expect zero personal allowance, and in fact with PHI etc a 'K' tax code

To clarify - I earn £156k and pay pension at a rate of 9%. Per month, I pay £520 and my employer pays £650.

I guess the question is why you are having to save to fix a leaking roof on the income you have?

That's completely irrelevant to this post - you don't know the OP's circumstances

I'm not sure that you are paying 9% OP, 9% of 156k is much more than £520 a month. Your total contributions including your employer may be 9% but yours are very low. If I were you I'd pay much more into your pension which will in future bring down your tax liability

It looks like you are paying 4% and your employer is paying 5%

Just had a look at my benefits summary and @PickledPurplePickle is correct re pension contributions - my employer contributes 5% regardless of my contributions. I would like to sort out my finances in the new year and increase my pension contributions.

Very true. To answer the question simply: I have very high outgoings. I am the main earner and take home pay is around £7,600 pm.

• I live in an expensive part of the country (£2k pm for a 2 bed house that is falling apart)
• I privately educate my daughter in an effort to limit the impact of her disability (£2,300 pm excluding extras)
• I commute to London (£600pm pm including car parking)

Those are just the headline items. Theoretically I should be able to save but practically I’m often not able to.

Hi I am no tax expert but I think you have been caught in the stealth tax bracket and this extra tax owed could be the personal allowance you would have lost between 100 to 125 k , this is why it feels even at such high salary the net result is not that great , HMRC will issue you new tax code probably next year to take this into account
I feel your pain ;it is rubbish after 100k unlesss you hit above 150 k ++ it is not worth it; think about reducing your taxable income by increasing your pension contributions and by salary sacrifice scheme ( for car lease or childcare vouchers) if your employer gives this option