Any tax experts? Tax on bonus.

[StMarieforme]

Hiya,

I am getting a £5k bonus on PAYE month 6.
Will HMRC tax me as if this is my new MONTHLY salary, and then put it right in month 7 when it is back to normal please?

This is what I think will happen.

Thanks!

It depends how much you earn and how much you’ve earned this year, will it tip you into the next tax bracket? Why don’t you ask your payroll department?

That's what's happened to me in the past!

Someone mentioned to me a long time ago that you can ring them and let them know so they only tax it as a one off, and NOT your new income, but I've never put that to the test!

It will be taxed as the top slice of your income. So each month you get 1/12th of your personal allowance and then 1/12th of the lower rate band etc. Bonus will be the top slice. It may well push you into a higher tax bracket for one month.

But I'm not asking how much I'll be taxed? Just if I'm overtaxed, will it come back when my normal pay reverts?
Thanks!

Yes but will HMRC assume that this is my new salary, and therefore tax me in month 6 as if I am going to also get the extra £5k in months 7-12 as well?

It’s sliced. Each month it works that way. That’s why you get roughly the same amount in the pay packet every month and not loads at the beginning of the year and a small amount at the end. So next month you will get taxed on whatever your pay is and will again get 1/12th of your personal allowance, 1/12th of your lower rate band, 1/12th of higher rate band etc

It depends on your tax code.
As long as you have a cumulative code (ie DOESN'T have W1/M1 or X at the end of the numbers) then it works as follows.

M1: you get 1/12 of your allowances for the year, tax is worked out on your 1st month salary and you pay the tax accordingly.
M2: you get 2/12 of your allowances for the year, tax is worked out on your 1st + 2nd month salary and then the tax you paid in M1 is deducted and you pay the balance of tax accordingly.
M3; you get 3/12 of your allowances for the year, tax is worked out on your 1st + 2nd + 3rd month salary and then the tax you paid in M1 + M2 is deducted and you pay the balance of tax accordingly.
And on to M12.

If you get a bonus in say M6 then it takes you into different tax bands then you will GRADUALLY recoup the "overpaid" tax over the course of the remaining months in the tax year.
This means that by the end of M12 the tax paid is correct based on the year to date position.

The calculations don't make assumptions as to your salary continuing as you suggest, it is just all based on the cumulative to date position.

---

If you DO have a non-cumulative tax code then it is just worked out as 1/12 each month and at the end of the year your may have overpaid or underpaid tax and it would need to be adjusted separately.

You will get taxed to shit. Yes!

I have this. It is what it is. I hear you get taxed less the next month to even it out but I've never seen evidence of that.

To clarify, you'll get taxed at 40% and then the next month back to 20%.

@Chasingsquirrels has it right.

You will generally be taxed a lot this month as hmrc assume this is your new high salary.

Then it's repaid a bit each month until end March.

Hence lots of bonuses are paid March to avoid this hassle.

Ni is done month by month. Paye is done on year to date basis each month.

Yes this is what happened to me OP. They even sent a new tax code out as they thought my new salary was over the threshold for losing personal allowance. All sorted the following month and I had a paye refund.

I’m not a tax expert, but I usually get over-taxed that month, then recoup it in the following months.

Many thanks Al! I now have my head round it! You guys are all great! 😊

Of course it gets evened out. You'll pay exactly the same amount of tax over the year whether you earn £5k pm every month or £4k for 11 months and £16k on bonus month.

I have the same question on some PILON I'm due to get paid. But I won't be in employment after that to recoup it. Really need to not be overtaxed.

It will be taxed all in one go but you can then potentially reclaim some if you don’t go on to work again thus tax year and hadn’t used all allowances

@user8754387 thanks, so I have to wait until the end of the tax year to reclaim it?

or it gets adjusted in the next role

I might not go back to work.

@Floofydawg No you can claim money back anytime, I did it online and got my overpaid tax back quite quick. I seem to remember I had to click that I wanted refund rather than it rolling over into next years tax.

Thanks @Mindymomo

It may trigger a change to your tax code depending on the numbers, as the system assumes it’s your new normal monthly salary. If your code does change it will be because your personal allowance reduces, or because the bonus causes assumption of a higher rate tax band, especially if you have a second source of income. Check your payslip, or ring payroll and ask if they’ve been told to change it. Quickest way to correct it is to call HMRC and put them in the picture. It may be that the call handler you speak to sorts it, but if nothing is put right call again. HMRC is barely functional these days, I’ve been told all sorts of nonsense on the agent helpline.

It’s all very well people saying wait til year end but HMRC are still processing (or not!) run of the mill PAYE refunds due since April 2024. That’s a lot of money owed to a lot of ordinary working people.

The OP hasn't given their salary so you can't possibly know they will be taxed at 40% and then 20%.

PP who explained any "overtax" will gradually be recovered over the rest of the tax year is correct (assuming you are not on a M1 code).

Thanks all. As far as I can see, as they will assume that my pay has gone up by £5k per month, they will tax me accordingly. Then as the next month comes along it will reset and they will tax me as usual, less 1/6 of what I have overpaid.
That would be better than waiting till next April! 😊

I’ve made an assumption based on the £5k being a bonus figure that causes a question.