1

My data (United Kingdom specific) :

March - NI Rate A and Tax Code 1150L

IN:

Gross Salary 2250

OUT:

PAYE Tax 0.00

NIC 183.0

April - NI Rate A and Tax Code 1185L

IN:

Gross Salary 2250

Gross Bonus 1732.50

OUT:

PAYE Tax 605.40

NIC 380.86

I get paid on the last day of the month for the month that is ending on that day.

I assume that my PAYE Tax for March is 0 because I only started work in March. I had not worked in the UK during that financial year.

As you can see, I received a bonus in April. It came with a caveat, though. If I were to leave before of this calendar year, I will have to give the whole amount back (the gross amount, the 1732.50). It would be deducted from my gross salary. In case I do leave by the end of the year, can anyone please, tell me (or teach me how to calculate or find out) how much will I wind up losing because of this 'bonus'?

Thank you very much.

1

gnasher729's answer does an excellent job of covering the general rules for how tax and NI is calculated. However, specifically addressing:

In case I do leave by the end of the year, can anyone please, tell me (or teach me how to calculate or find out) how much will I wind up losing because of this 'bonus'?

Broadly speaking, as long as you don't cross from one tax-threshold to another (i.e. earn enough to put you in a different tax band), then you shouldn't "lose out" if you had to repay the bonus (although it's possible it may take a month or two for things to "settle out").

The month it is paid, you will pay extra tax and NI, but the month it is "clawed-back" you would have a lower gross salary and therefore pay less tax and NI. Roughly speaking, the extra paid when you get the bonus should match the reduction you get when your final month's salary is reduced by that amount1.

Using the first salary calculator I found, I got the following figures:

                  With Bonus    Normal Month       Claw-back
                  ----------    ------------    ------------
Basic Income        2,250.00        2,250.00        2,250.00
Bonus               1,732.50            -.--         -866.25
Gross Income        3,982.50        2,250.00        1,383.75
Taxable Income      2,995.00        1,262.50          396.25
Tax                   599.00          252.50           79.25
NI                    381.66          185.76           81.81
Take Home           3,001.84        1,811.74        1,222.69
                                                     -589.05 x 2
Difference         +1,190.10                       -1,178.10

The first column shows the month you get the bonus (the figures for tax and NI are fairly close to yours2). The second column shows a "normal" month. From these, you can see you get "take home" bonus of just under £1,200.

The last column needs a little explanation. While the calculator will show the effect of a one-off bonus, it won't show the effect of a one-off deduction. For the month you pay back the bonus, your gross salary would be £2250 - £1732.50 or £517.50. If you enter the equivalent yearly salary of this (£6,210) then because that is below the tax-free threshold, it doesn't show any tax/NI being deducted.

Instead, I have notionally split the repayment over two months and used a gross yearly salary that is equivalent to a monthly salary of £1,383.75 (= normal salary less half the bonus). This results in a reduction over a normal month's salary of just under £590, or £1180 for two months. This is fairly close to the extra you got when the bonus was paid (£1190) so the two more-or-less cancel each other out (if anything, these figures show a slight gain of ~£10).

Summary

By my estimation, what you gain in the month when the bonus is paid will be fairly close to what you lose in the month when it is clawed-back.

What might be of more worry is that if they do claw it all back in one month, although you shouldn't lose out overall, you are liable to have a very small pay packet: something in the region of £633 (£1811 for a normal month less the £1178 estimated cost of claw-back).


1 Were the claw-back to happen right at the start of the tax year, it might complicate things: as gnasher729 notes, the calculations are based on your taxable-pay-to-date, and a partial assumption that the current month is "typical". If everything was clawed-back in the first month of a tax year, your "assumed yearly pay" would be very low (12 x 517.50, or £6,210) meaning you probably wouldn't pay any tax that month. However, the saving over a normal month (~£250) wouldn't cover the extra you paid when you got the bonus (~£350).

This might sort itself out later in the year, but it might not. However, if – as you say – the claw-back happens if you "were to leave before [the end] of this calendar year", then this shouldn't be an issue.

2 In my experience, there is rarely a "to the penny" agreement for this sort of calculation: it may depend on whether the bonus is treated as a true "one off" payment, or is assumed to reflect a raise (and hence you'd be paying more throughout the year). Also, as the tax-calculator I used notes using these figures:

You might find that about an extra £24.00 of income tax than indicated is actually deducted from your bonus payslip. This is because your earnings in this pay period put you over the income tax threshold for the month, but not for the year. Normally, this "extra tax" is refunded in subsequent payslips.

The point is that the figures are "close enough" to be a reasonable indication of what would happen when the bonus is clawed-back.

  • Thank you very much for all the time and effort you spent explaining that to me. – Alex Dumitrescu May 4 '18 at 15:27
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Your national insurance contributions are paid every month exactly according to what you make in that month.

Income tax is different. (For non-UK readers, the UK tax year is April to March).

You started work in March, it's your first job. You make £2,250. So you made £ 2,250 in the whole year, which is tax free.

Next month is April, first month of the new tax year. You make £ 2,250. The company estimates that you will make 12 times that in a year, that is £27,000. They look up the tax for that amount, and by the end of April you should have paid a 12th of that, so that's how much tax is deducted.

Then comes may. Let's say you make £2,250 again, plus a £4,500 bonus. You made £9,000 in two months, so the estimate is that you make £54,000 in twelve months. They look up the tax for £54,000, by the end of May you should have paid a 6th of that, so they take one 6th, subtract what you paid in April, and that's what you owe in May.

Over the year it all should come out right so that at the end of the tax year you have paid exactly the right amount.

In extreme cases (like you make £2,250 in April, you are unemployed for two months, then make £2,250 again) you may actually get money back, so your net income can be higher than your gross income, because after 4 months your average income was £1,125 per month, and your estimated annual income £13,500, which is almost tax free.

  • So, it should all even out by the end of the tax year? I won't lose money if I give back the bonus? Thank you very much for your explanation. – Alex Dumitrescu May 4 '18 at 10:08
  • Yes, at the end of the tax year your total income tax deducted by your employer or employers will exactly match the tax that someone with your total annual income should pay, no matter what happened in individual months. The exceptions would be if you didn't work in March or February/March, so you will have paid too much per year, or if your company makes a mistake. In these cases you can fill out your tax return, and HMRC will fix any calculation errors etc. – gnasher729 May 5 '18 at 16:26

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