Tax timing question

[berneslai]

Hi,

This should be a simple question but I can't see to find the answer anywhere.

If an employee was to earn at the 40% tax rate but a bonus was payable before the end of the tax year that sent him/her over the limit for the loss of the tax allowance, would the additional tax be payable on receipt of the bonus payment or over the next tax year? e.g. Employee A earns £80,000 annually but was given a £40,000 bonus on April 1, 2013.

Many thanks,
Bern

[section 44]

receipt (presumably not a director)

[Pavlos]

Surely the tax is due either in the following year, or at the point when self assessment is submitted?

If the employee is normally a 40% earner (assuming this is their only income) they will have a standard tax code that has not been reduced in relation to the income limit for personal allowance. Therefore the PAYE system will have to calculate tax on the bonus based on their unadjusted tax code.

HMRC will not know the employee needs an adjusted allowance unless the employee advices HMRC themselves before payment. The employer has no authority to reduce the employee's personal allowance.

Once End of Year returns are submitted (P14 and/or self assessment) it will then be up to HMRC ad the employee to decide how and when the tax is paid.

Pav

[mullet]

Surely the tax is due either in the following year, or at the point when self assessment is submitted?

Let's guess that we're talking about 2012-13. If the bonus is paid on or before 05-04-2013 then tax is due via PAYE to the extent that the tax code/tax tables calculate the tax deduction. Any further tax payable (either as a result of the K code 50% limit or the restricted personal allowance) will be due for payment to HMRC on 31-01-2014. If the bonus is paid in 2012-13 then for PAYE purposes it is taxed in 2012-13.

[Tim Kitchen]

The tax is definitely due either in the following year or at the point when self assessment is made. If the person is an earner up to 40% level then they will have a standard code system which will not be reduced with respect to income limit for any personal drawings. So, the payee system will have to calculate tax on the amount after the bonus being added based on their unadjusted code.

[Pavlos]

If the bonus is paid in 2012-13 then for PAYE purposes it is taxed in 2012-13.

But the question relates specifically to if

a bonus was payable before the end of the tax year that sent him/her over the limit for the loss of the tax allowance, would the additional tax be payable on receipt of the bonus payment or over the next tax year?

So it's a personal taxation issue and due through self assessment or following year PAYE.

[robbob]

But the question relates specifically to if
a bonus was payable before the end of the tax year that sent him/her over the limit for the loss of the tax allowance, would the additional tax be payable on receipt of the bonus payment or over the next tax year?

Assuming a normal tax code is used - the normal higher rate tax would be collected by paye at the time the bonus is paid in month 12 2012/13 - this is presuming the employer doesn't complicate matters by including this payment on a payslip dated in 2013/14 (this probably shouldn't happen but some employers pay calender monthly i can imagine a lazy employer may simply add any extra items after the payroll run onto the next month which would be in 13/14

Any extra tax that does need to be paid (if there is any) would be collected via the normal methods I.e once the self assessment return is submitted and the tax due is calculated- there is not enough information posted here and too many factors at play to say exactly how (coding adjust or physical payment being needed) and when the tax will be paid.

There is probably a tax saving stategy here if the employer and employee could have agreed to split the bonus payment between the tax years - although this ploy may not work if income in later year is also expected to be over 100k.

[King_Maker]

It would normally be taxed next year 2013-14 - unless Payroll for April 2013 is done before 5 April 2013?