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Sam
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Category: Tax
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,,,Hi, My friend received a bonus of £6000 in April 2011 (in

Resolved Question:

,,,Hi,
My friend received a bonus of £6000 in April 2011 (in addition to her standard monthly: £2500). She paid much more tax that month (£2567.07) - which is understandable. Then in months May - August her tax was much lower (around £167.47) and in September & October was higher again (£215.46 & £375.41). She was on 747L, PAYE, 30k£ per annum + bonus in April. Can you please explain why her tax was lower between May & August, and then higher in September & October? - even though that her monthly salary stayed the same?
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi

Thanks for your question. I am Sa and I am one of the UK tax experts here on Just Answer.




You advise that her salary stayed the same, so clearly the extra tax that arises in April,due to the bonus paid, sees that months income taking her into the higher rate tax bracket - but as the following months proceed May to August, she is then refunded some of the tax back that has been over deducted at the higher rate.
By September this has rectified itself - and she then resumes to paying the normal tax again for Sept through to the March.

This occurs, as PAYE allows each month to have some income paid tax free, then so much at 20% and so much at the higher rate.
For 2011/2012
Her first £622.92 a month is tax free
Then the next £2916.75 at 20%
And for your friend anything over that total of £3539.67 at 40%

So for April she would have paid a high level of tax at 40% - and the following month May (Month 2) would have then had less income due at 40% - so when looked at cumulatively awarded 2 months worth of tax free income, and 2 months charge at 20% - and then 40% charge (if any income exceeded £3539.67 for that second month) would have created a refund due back
Same for Month 3, 4 and 5
For month 6 - the tax she was liable for would have levelled out again - hence the seemingly increase in tax (but not an increase at all, just the normal tax, with no further refund due !)

And the same will happen every tax year - but to ensures the correct tax has been taken - the P60 will show its all come out correctly by year end!

Let me know if you have any follow up questions


Thanks

Sam



Customer: replied 3 years ago.

Hi Sam,


 


Thank you for your quick response.


 


I'd like to ask you few more questions please.


- is it any general rule she can use for the future based on her situation which occurred in 2011 - if the similar situation occurs again, if she receive another bonus in April 2015?


- can you please explain a bit better the situation in Month 6 (September) and Month 7(October) as Its not clear enough.


- the tax she paid in the following months (from November onwards) would it be around the tax she paid in October?


 


Thanks

Expert:  Sam replied 3 years ago.
Hi

Thanks for your response

I am not sure what you mean when you ask
"is it any general rule she can use for the future based on her situation which occurred in 2011 - if the similar situation occurs again, if she receive another bonus in April 2015?"

This will always happen if any large bonus is paid in the early months of any tax year - because of the way the tax tables (which calculate the tax due) operate.
So if the bonus was paid in the latter stages of a tax year - this would not happen.

I cannot comment on each and every month, just the reason why this would have occurred - you would need to ask her employer to provide a month by month explanation for this, and specifically the position for September and October - as I have no access to her monthly pay for each months or the tax deducted/due

Again regarding the tax position for November onwards - you would need to ask the employer -


Thanks

Sam


Customer: replied 3 years ago.

Hiya,


 


Thank you for your time and sorry to be a pain. My friend has not got much knowledge about taxation and her employer doesn't want to explain the situation either. Would you mind just finally look at the below table (I have put together all the amounts paid in/out (except for NI ) - and just maybe try now to explain that higher tax in Sept & Oct please - comparing to tax in April - Aug?


 






























































2011/2012


SALARY


BONUS


TOTAL


INCOME TAX DEDUCTION


APRIL


2500


6000


8500


2567.06


MAY


2500


0


2500


167.47


JUNE


2500


0


2500


167.47


JULY


2500


0


2500


167.06


AUGUST


2500


0


2500


167.47


SEPTEMBER


2500


0


2500


215.47


OCTOBER


2500


0


2500


375.40



Thank you

Expert:  Sam replied 3 years ago.
Hi

I certainly am happy to look at this -

The first thing is that the annual income (with the bonus) would have come in at £36,000 so your friend would ultimately be just a 20% taxpayer.

The tax deduction for April 2011, seems a little low as this should have been £2600.17 (but as some of this then was due back as a refund- this isn't a problem)

The tax due from October is correct and should have remained at £374.40 every month (assuming the pay was the same at £2500 and that the tax code remained as 747L)


If you want to work out every single month with what tax was due versus what was paid, then this will either need listing as a new question (which I am happy to answer if you would like to request me) or if you are happy to add a bonus.
This is because this is time consuming and I will have to work this out manually - and is over and above what your initial question suggested was required.

But I can advise that the refunds were made from Month 2 (May) through to Month 6(September) with the last little bit of refund and then Month 7 (October) was the correct tax due for a salary of £2500 a month - and should have remained about this amount from month 8 (November) through to Month 12 (March)

If you could rate the level of service provided so far, it would be appreciated, as this ensures I am credited for my time

Thanks

Sam





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Customer: replied 3 years ago.

Hi Sam,


 


Thanks you for your help.


 


Regards