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!

Not what you asked... but do you have plans for the bonus money? If it's just a 'nice to have', then have you thought about having it directed straight to your pension? Then you don't pay any tax on it at all (until you retire of course).

We don't get bonuses every year, and we certainly can't rely on them (business goes up and down, so it's not a given that we'll have enough profit for a bonus), so when we do get one then I just get payroll to put it straight in my pension. I never had it, so I don't miss it, and I'll be glad for it one day!

Evened out as in you pay less based on being charged more for that month. I’ve had it described as “paying barely any tax the next month” but I’ve never seen that. What I have seen is paying the usual amount in the usual salary.

You pay the same paye

Bit you don't pay the same national insurance if you get a big lump sum 1 month versus small amount extra every month.

I also agree about the pension option -very useful and a good employer may also give you the employers national insurance that they save too (so an extra 13.8%?) if done via salary sacrifice

It only matters if it tips you into a higher tax band though. If it doesn't, assuming you are already over the personal allowance, then you'll pay 20% tax on it and next month your pay will be the same as the month before the bonus. There won't be any over payment to recoup.

Month 6 was last month I think?

@Negroany I don't think that's correct based on what someone said upthread about each month being treated as a monthly 'slice' and assumptions being made regarding your annual earnings.

Yeah, it is. If you earn £20k pa, you're in the 20% band after the allowance. If you get a £5k bonus in M7, that's equivalent (in HMRC weird view) of £25k. That's puts you at £45k for the year, which is still under the 40% band.

If, as the OP said, the bonus is M6 (unlikely, that was last month) then it adds £30k and takes you to £50k which just tips you into the 40% bracket - but might not, depending on your pension contributions.

So, yes, it is only an issue if it tips your (notional - i.e. imagined by HMRC) salary into the higher band.

I have this at the moment because I went pt in one job, and started a new second pt job, and as soon as my P46/RTI form went in for the new job HMRC assumed I'd earn the ft salary (because I'd not yet got the lower salary from the first job) plus the second pt salary, which annoyingly, hypothetically, put me over £100k. So my tax is currently totally screwed!

Ok sorry, so you're talking about the annual tax bands. Rather than the cumulative amount earned and paid in the year.

You can go on to your HMRC account online and adjust your earnings for this year to include the bonus. Then your tax code will change to the correct code for your income over the financial year (including bonus).

There are only annual tax bands.