Bonus at Employer means I go over 40% bracket, help!!!!

[roper999]

Hi,

The long and short of it is I am to receive a bonus of £25,000 from my Employer in a couple of weeks.

My current taxable earnings for this tax year stand at £18,290.66.

I earn in the region of £2,300 per month before tax and national insurance is taken off.

Obviousley with this bonus I am going to hit the 40% tax bracket this year. So, I have worked out that my current taxable income after my bonus this month will stand at around £43,290. Minus my personal allowance of £4,570, minus 10% Lower Rate allowance of £4,236 which leaves £34,484 taxable income. So assuming the higher rate tax bracket is £30,500, I will have to pay 40% on £3,984.

So, my question is, as I am already over the 40% tax bracket, will my monthly income until April 2005 be charged at 40% tax?

Sorry to bore you with figures, I thought I would give you guys/gals abit of info so you might be able to advise me better.

I am quite new with tax and the figures are probably not exact, but I tried. Also, I have not taken into account any national insurance payments, would my bonus be subject to NI payments?

Thank you for any help and advice anyone can give me.

Kind regards

[Lambs]

Roper, most people's salaries are taxed with a "slice" of Personal Allowance, Lower and Basic Rate Bands allocated to each month. Salaries are normally taxed on a "cumulative" basis: figures for the year to date are aggregated.

Unfortunately, most of your bonus will be taxed at the Higher Rate this month. Fortunately, (unless you are a director), it is unlikely that you will have to pay as much National Insurance Contributions this way, as a bonus, as you would if it were spread over the whole tax year. (NICs for most people who aren't directors are NOT aggregated, but there is a 1% minimum NIC charge now on all earnings arising from employment, even where they exceed the Upper Earnings Limit).

Looking forward to the rest of the tax year, up to 5th April 2005, you should find that you will get a twelfth "slice" of Personal Allowance, Lower & Basic Rate Bands each month, so no, not all of your monthly income will now be taxed at 40%.

Note that investing into a personal pension extends your Basic Rate Band beyond the normal amount: if you decided to make a lump sum investment now, you would most likely get a tax refund at the end of the tax year, at 18% of the gross amount of the amount invested. You should speak to an appropriately-qualified financial adviser before deciding on any kind of investment; he or she might also suggest an Enterprise Investment Scheme investment, or the similar Venture Capital Trust Scheme, as tax-efficient investments.

If you want a more accurate forecast of your net pay, etc., then you will have to tell us your current tax code, and whether it is indeed a cumulative code or on a "Month 1" basis.

Don't forget that whilst we can tell you what your in-year pay should be, the Inland Revenue may still reckon up your final liability after the end of the tax year, after all other income/benefits in kind (e.g. private medical insurance, company cars, that kind of thing) and allowances have been considered.

[King]

Lambs - I was interested to read your response.

I have one query: my salary is below the 40% income tax bracket but on occasion over the course of the year a bonus take my monthly slary over the 40% and this chunk is therefore taxed as such in that month.

My question is can i get this tax back (ie. is it calculated on an annual as oppsed to monthly basis) and if so what is the best way of doing it?

Many thanks.