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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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First time in my career my income will push through

Customer Question

for the first time in my career my income will push through £100K but so far this year my PAYE has assumed an income of less than that.
The minimum I will earn is £107400 so this takes into account my income YTD and my 2 remaining pay packets assuming £0 commission.
It is possible that I may earn some commission this month that will be payable in March (there is no commission due in Feb) and that amount could be anywhere between £3500 and £7500 (and maybe even more).
My tax coding for the next FY has been set at 9T - so it already has factored in my likely income next year.
My question is what is the most tax efficient way for someone on PAYE to manage this? Can I legally request my employer to defer my commissions earned until April? Or is it best just to take the hit and lick my wounds?
Submitted: 9 months ago.
Category: Tax
Expert:  TonyTax replied 9 months ago.
Hi. If your commission has always been paid in March then it will look odd if it is deferred until the first month of the new tax year but I don't know of any legal reason why it cannot be done. It may be that your employer's year end is 31 March and it wants to account for commissions sooner rather than later. An alternative would be to sacrifice the commission in lieu of a payment into a personal pension scheme and/or to make an extra payment into a personal pension scheme to avoid losing the personal allowance altogether as the effective rate of tax on the band of income between £100,000 and £121,200 is 60%. On an ongoing basis, if you think you may lose some or all of the personal allowance in the next tax year, you could ask HMRC to take away some or all of your personal allowance in advance so as to avoid an underpayment. At the end of the tax year the situation would be reassessed and if you had overpaid, you would get a tax repayment. It looks like HMRC have already done that with your 2016/17 tax code. I hope this helps but let me know if you have any further questions.
Customer: replied 9 months ago.
I'm not entirely clear - maybe working in figures would make it completely clear:
my minimum earnings will be £107,400 - does this mean I will pay 60% on £7,400 in tax?
similarly if I earn £115K - will I pay 60% of £15K in tax?
what exactly does 60% nominal rate mean?
Expert:  TonyTax replied 9 months ago.
It doesn't mean you pay 60% tax directly as there is no 60% tax rate. You would pay 40% tax between £100,000 and £121,200. The effective rate, however, would be 60%. Take a look here for the rationale behind the 60% figure, in particular the section headed "How to take advantage of the 60 per cent tax trap".

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