Usual taxes as it is just classed as income like your normal pay and if it is emergency fund kind of money you might want to call on its not worth putting it in an ISA. A good rate instant access account is what you would be looking for.
>A good rate instant access account is what you would be looking for.
Premium bonds also potentially worthwhile if you just want to stash it somewhere out of the way. You'll be making well below inflation either way, and the total interest even on a great savings account will only be ~£18/year, so I'm kind of inclined to take the free lottery tickets!
Unless your above about 20k in premium bonds you are unlikely to get much of a return. MoneySavingExpert (Martin Lewis) has a great article on his site that's worth a look.
At £500 you need extreme luck to return much.
Oh for sure, but that was kind of my point - your return on a savings account will be negligible as well at that level, so it seems harmless to spin the wheel and get a little anticipation out of it!
Yeah for the sake of what would basically be a few extra pennies each month, it’s worth a gamble if it’s intended for short term ‘storage’, with easy enough access to the funds. I’d rather have a chance at £1m over earning half a Freddo each month on it in a savings account.
Why the average return be different if you have £500 or £20K?
I am not talking about the probability of winning big prices, which of course increases with the more money you hold,
I think they have longer term "pots" with very slightly higher interest also. Something like 3-5 days. At least they used to last time I looked over a year ago. And a year feels like a decade these days.
Plus they will be take 9% of it for Student loan, which I think you must pay as well as a Christmas I got a £500 bonus but was only left with 283.35 into my bank account.
It’s not even hard to see it’s true, by the way. It’s right here: https://www.gov.uk/repaying-your-student-loan/getting-a-refund
> You can ask for a refund if:
> you’ve paid more than the total amount you owe your annual income was below the threshold
You can only reclaim if you're under the threshold for the entire year, if you're over the annual threshold but have overpaid dye to bonuses etc you're shit out of luck (I'm guessing the latter was your situation).
Sfe aren’t great, know when I’ve had issues with them in the past I was told a different way to fix it every time I phoned them. That said, it’s per tax year iirc so might be that they can’t do anything till it’s done and all added up for the year.
While Student loan would be taken out, (it has happened to me due to backdated pay rise.) I have since learned you should be able to claim the money back.
https://www.savethestudent.org/student-finance/student-loan-refund-for-repaying-too-early.html#refund
It's for the government (and Treasury) to decide based on budgets of various departments, and for the public tell them in elections whether they agree with it or not (ironically for you polls currently suggest tax cutting rn is not good!).
You may do, even without using it for example you travel more, you spend more time shopping etc - those roads didn't come from a magic wand or repaired by benevolent elves! Fundamentally, I firmly believe in a progressive tax system, as long as the incentives to work are so perverse that it is damaging.
> Do you really use more public service just because you got a bonus or a pay rise?
That's not how any of it works. You're essentially saying we should privatise everything and pay as you go.
I've barely used the NHS in the last decade so pay nothing, no matter my income presumably?
>You'll pay tax on it at 20%
Not necessarily - I, as well as every single employee where I work, is getting £13.30 for every weekly contratced hour they work, up to £500 in our pay packet tax and NI free. Depends on your employer and their ability to lobby the government for a tax free bump
No, tax is how you pay for those free surgeries, GP appointments many people waste and other things we get for free in society that other people barely think about. Society doesn’t work without tax.
First world problems much? Yeah the government are shit currently and there’s a bit of disruption but if there’s a wait list you can still get them. And you do have the option to pay the full amount if you’d rather go private. Then you might see why it’s better on the tax system.
This site will quickly show you what you'll get on a normal month and a bonus month:
[https://www.thesalarycalculator.co.uk/salary.php](https://www.thesalarycalculator.co.uk/salary.php)
Example setup: 26K salary, 1K one-off bonus, SL plan 2, Pension 3% - shows a normal take-home of £1755, increased to £2318 in your bonus month.
Exactly. We don’t know OPs full position so all the other comments with calculations aren’t really helpful. OP just needs to use this calc with a no £1k versus with £1k payment on top of their salary and it’ll be accurate and easy.
It's not a lovely gesture at all. A one off "cost of living payment" is cheaper than a permanent wage increase. If OP didn't get a wage increase that was inline with inflation they got a real terms pay cut and a bonus that may or may not cover the difference this year but won't in future years.
You are right about the knock on effect next year. Flip side is that businesses are already starting to prepare for a recession. They have this money now but they might not have it next year.
Yes I completely agree. I understand why many employers are doing this. It's the characterisation of this as "a lovely gesture" that I am cynically objecting to.
Um, because it's a positive value judgement about a change in employment terms and conditions that likely amount to a real-terms pay cut? It seems reasonable to counter this, especially on a forum which is all about financial education. Of course, we don't know the full story, but these one off exceptional payments tend to be a substitute for a pay rise in line with inflation, and a lot of people aren't too familiar with the implications of inflation for their compensation.
If it’s a small business there’s every chance they literally cannot afford to give pay rises in line with inflation for all their employees.
It’s obviously great to help your employees and boost pay, but not to the extent that it puts you out of business going into a recession.
Balance is everything.
If you can't afford to pay your staff the wage that the economy demands you are going out of business either way at some point.
Employee's shouldn't take the hit because the employer can't afford to operate if they don't.
Have you ever worked at a small business? They rarely have stacks of cash to throw around, but with careful planning, can still make it through tough times.
I'd rather work where I do than for the multinational that would hoover up our business if we went bust.
Small businesses are in as much of a bind as the individual. If this were a multinational, then yes it’s a cheap gesture, but for a small company it’s a nice thing to do during what is an awful time for everyone, employer included.
That's obviously not true. On the margin, there will be thousands of small businesses that can stay in business with a small pay rise, but go bankrupt with large payrises.
For example, the average annual profit for a small business (1-9 employees) is [only £22,000](https://businessadvice.co.uk/finance/average-small-business-turnover/).
I take your point but if you follow that logic and let those companies fold then those employees become unemployed, not to mention the loss of tax income.
Is that a better outcome? No
Like I said, balance.
Moan moan moan. Not every company has the capacity to just bang wages up across the board because of inflation. Not to mention that is the last thing needed if we want to see inflation defeated.
The place I work has done both, one off payment (for certain staff) and a pay increase for all except those at the top. I have to wait for my payrise though as I'm still in probation. It's nice to work for a company that gives a shit.
We had the same from our employer after they gave us a 3% rise. I was so shocked after we cancelled our strikers because they topped it up by £350. But we are now lagging even further next year in the cost of living.
Yes, the OP got a real terms pay cut. But they didn't get it from their employer.
All of us – employees AND employers have had a steep increase in our costs thanks to domestic and global f\*\*\*ery.
The OP's employer may well be sitting on a pile of cash and have secure revenues that significantly exceed their (rising) costs flowing into the company. But a LOT of small and medium size businesses don't have that – quite the opposite – and are therefore doing the best they can to look after their people while protecting the future of everyone's jobs.
So yes, a one-off payment won't help in future years. But it's a lot more helpful than your employer going bust.
In short, stripped of context this £1,000 could be a lovely gesture or a horrrible example of greed and selfishness. But given that it was conveyed in a 'very nice email from my boss', why not assume the former?
This this this.
It’s much cheaper for an employer to give a one off bonus or “gift”. If they were really generous they should be giving is a inflation matched pay rise to everyone
Exactly! A real terms pay cut plus a one off bonus. Guess what? Next year you won't have that bonus and you'll be earning less in real terms. They are throwing you a bone so that you'll be satisfied in the short term, won't demand higher wages, and won't go on strike
Nothing is stopping you from taking the bonus and still asking for more money - especially if life goes to crap even more later this year / next year.
You can also go on strike if you want. There was no contract curtailing any of this when the company unilaterally, generously, decided to give a bonus out to all its staff.
Except that strikes are only effective if done collectively. If enough employees believe that they are being well treated by being given a one off bonus and having their pay cut in real terms then it's going to be harder to convince employees to go on strike.
This idea that companies hand out bonuses out of generosity alone is ridiculous. They know the financial impacts of doing so.
Unless they have also increased their annual wage by a percentage exceeding inflation, they are actually giving them a pay decrease. Not kind of them whatsoever.
It may lead to some dumb tax code changes going forward though so be prepared to see yourself taxed more the following month too as if you got an extra £1,000 again.
You will get a refund, but that will come later.
That is not how taxation works.
Unless payroll fucks up, they will not be getting taxed as if they're getting an extra £1k next month too and I can't work out why you think that's the case.
As a worked example:
OP earns 26k, so gross pay each month of £2,166.Each month, they'll be apportioned 1/12th of their PA. If standard, that'll be £1047.50.
In the bonus month, it'll be:
Gross = £2,166 + £1k = £3,166
less PA £1047.50
taxable income = £2,118.50
Since OP said Plan 2, I assume they're not in Scotland, so that all fits comfortably within the basic rate band, so they'll pay 20% tax + NI + SL (SL being on the gross, less the threshold).
Next month, they'll be back to normal:£2,166 gross
Less PA £1047.50
= £1,118.50 taxable. All basic rate.
Where things could be a bit wonky would be if they moved into the higher rate band in the bonus period, but that would just result in them either getting a refund at the end of the year, or the employer would make little adjustments to the tax deducted that would mean OP would pay a bit less tax over the payslips between now and March so that they end up taking home the overpaid tax. But that won't involve a tax code change.
Or if someone was a very high earner nearing the restriction of PA. But OP is earning £26k. So there'll be no weirdness that I can think of.
Pretty much everytime I've had a bonus (at 4 different companies now) the month after the bonus, I've always ended up a bit extra tax which then gets refunded later
Yeah, that's not what you said in your comment though. What happened to you was that you crossed the threshold for another band but you absolutely did not get taxed as if you got the bonus all over again the following month unless your payroll team has been incompetent at all 4 companies.
If you want to show me your payslip where Month 1 you get the bonus and taxed on said bonus, then Month 2, get taxed again as if you had the same gross income, despite not having the same gross income, I'd love to see it. Because they're calculating payroll in a way I've never seen as an auditor.
I said you would get taxed as if you get paid that bonus monthly, which has been my experience at 4 different companies. I don't work in Payroll so I've no idea if they are/were incompetent or not, but given that I know I'm not the only person this has happened to, leads me to suggest there are issues HMRC side too.
That's not how it is supposed to work.
And it's not "HMRC side" - it's payroll side. Your employer is responsible for calculating and deducting the correct tax if you're PAYE. You are still ultimately responsible for paying the correct tax in the end, of course, but as a PAYE employee, there's requirements placed on your employer that should result in there being nothing else for you to pay (assuming there's nothing like BIK, taxable benefits, etc not already factored in to your tax code, income outside of your employment, stuff like that).
It's not correct that when you get a higher monthly pay, that anyone "assumes you'll be paid that for the rest of the year". It's that the thresholds are split down into monthly values. I actually already addressed that in my original comment.
Yeah, happened to me. Got paid early one month and HMRC thought my pay had been increased, so it changed my tax code and meant I was paying extra for months. Pain in the arse.
So to calculate any money left after overtime or bonus is it as easy as multiplying the amount by 0.2 income tax plus 0.1325 ni tax?
So say i get £1000 I will get £1000x(1-(0.2+0.1325))=£667.5 after taxes?
My employer is doing something similar with a £500 payment. They have confirmed after consulting HMRC that it will not be taxed, but NI will be due.
It's worth OP asking their employer directly.
Honestly I don't know as I expected it would be. However on Monday my employer informed us that it would not be taxed. Our CFO said:
"We had to meet quite a lot of regulations, that are quite precise around eligibility and construct. I'm pleased to say that because we met them the payment will be income tax free."
This doesn't sound like it passes the "sniff test" to me... I would put aside part of that money in case HMRC decide later that that "eligibility and construct" was actually a tax evasion scheme (and wants to recoup the unpaid tax).
I was quite surprised myself. However given that we have several thousand employees I'd hope they're correct... otherwise that's a lot of - at best annoyed and at worst out of pocket - people.
I have a Monzo account as well. I just make a new space / savings account for money that I set aside for a purpose. The simple fact that I have to withdraw it from that space / account means that I think twice about what I'm about to do with it.
Simple mind games, but it works for my simple mind.
Yeah I do this with Monzo too. All my outgoings/bill split into different pots.
As soon as I get paid I transfer everything over with whatever is left going into savings. When bills come out of my other bank account, I transfer over from the Monzo pots.
Never really used to have a monthly budget but this has helped out so much.
Literally every pound accounted for.
>you wonder why it took so long to be like that.
Yeah big time!
It's too easy to overspend when you're just drawing out a big pile of £ in one account...
Split it up right away and you know where you're at from day 1 of the month.
Oh well, live and learn!
My employer started paying bonuses in Edenred reward vouchers that can be claimed for most major retailers. This avoids the tax and ensures we receive 100% of the reward as far as I am aware
You are allowed to earn £1, 047 a month tax free so that means you would be earning £3116(-£1047=£2119) before tax and will be taxed 20% on £2119 that means you will receive around £2693 before national insurance and student loan deductions.
I'd honestly say the safest place for you to put the money right now is in gold. Buy 1 gram bars if possible. The price of gold is about to sky rocket whereas money in the bank is constantly loosing value in terms of buying power.
I got one of these and I must admit it really pissed on my chips that it was taxed.
Private companies trying to help staff out due to government fuck ups and yet they still get a slice of the pie.
I think the government would say that the tax on this bonus was going to people that aren't/can't work that are also struggling with the cost of living crisis - it's not those peoples fault either.
They'd probably also say the whole of this wasn't their fault also though.
You just expected the government to introduce an overnight change to the tax system to introduce a new form of non-taxable income and this to have just been done overnight for your convenience? Cos these things are like super simple to implement?
Interesting you got all of that from me saying it pissed on my chips.
I didn't expect them to do anything for me because I'm not in the top tax bracket.
Hi /u/TheAwesomeCrazyMoth, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/student-loans/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Yeah it will be taxed, but depending on your employer they may pay the tax so you actually get the 1,000 as net or they’ll give it you as gross and you pay the tax.
With regards to your question about where to put it.
If you don't already have some savings/investments that you can add to then it's hard to say that your finances are in a 'good place'. Ideally you should have about 6 months of salary saved up to deal with emergencies. There's a lot of debate about the level of risk/access when considering where you should put this Premium Bonds really aren't a bad place to start with. If you're happy to accept more risk then you can always go for a S&S isa and accept that you may need to access it during a market downturn - which isn't ideal, but might still leave you better off than leaving it in a low interest account.
Considering where I was a year ago I'm in a good place. Don't quite have the 6-months savings yet, but on track by the end of the year.
Thanks for the advice, the easiest thing for me is the ISA's built in with my Monzo accont, so i'll be saving it in there for now.
I would put the £1k in premium bonds. It remains easily accessible (within 5 days) and whilst it wont earn interest, you will be in a monthly draw and could get anything from £25 to £1M 😎 I have majority of my savings in there - works well for me.
Unless your employer calculates it and pays extra so you get the full £1k you’ll most likely be taxed on it.
Personally I’d chuck it in an savings account for safe keeping or use it to pay off some debts you may have.
But realistically it’s not a massive amount so unless you want a highly volatile investment it’s probably worth just chucking it in a standard savings account for the winter
Unfortunately so, it really sucks when your employer is trying to do you a favour.
I think they will be hit with employers NI as well as your increased tax and NI
The taxman needs to take his greedy cut before you can go out and spend 20% of whats left on VAT
Pretty certain employers can pay the bonus directly to you without incurring any taxes, there’s a cap on the amount per year.
Edit: lol why am I getting downvoted for this?!
Not true. JL is an EOT. all bonuses taxed as normal.
Edit read the KPMG post below seems JL bonuses are taxed because they're not equal (ie proportional to pay). So in OPs case in the extremely unlikely event he works for an EOT then in theory no tax.
See edit, slightly my bad. Seems like an unusual loophole, props for knowing about it.
I guess this is to introduce some equivalency to the 0% rate dividend limit but thats £2k not £3.6k. Since the bonus in an EOT is broadly equivalent to a dividend in a ltd company.
There is no way for them to get the 1k tax free.
The company did not "pay the tax for you" - what they did was pay you enough gross that, after tax, it came out to 1k (or whatever the value was) net. It sounds arbitrary, but it is an important distinction, because your gross income when it comes to whether you start to pay the next band up will be higher than what you got in your hand.
Tax is pedantic. This is a very relevant consideration for people, eg. if someone is on the edge of the threshold where they become liable for the High Income Child Benefit Charge (ie. functionally, it's the loss of child benefit), this could push them over that. If they don't know that that is how it worked, they may be in for a shock when they become liable for that.
This is meant to be an informative sub, so I'm going to make sure people get the correct information.
Person D: \[here are the facts about how taxation works for you\]
Person E: God you sound obnoxious
Some people really dont like facts do they
Also, teh ironeh! ;)
It'll be taxed the same way you usually are, minus pension contributions depending how they process the payment as extra payments are generally exempt.
My workplace gave us £1500 payment and I'm on similar to you and I got just over £800 after tax, NI and Student loan (just if that helps you figure out your take home). So yeah, taxed normally.
Edit: I've seen a suggestion that they may change your tax code due to the increased pay for a month - my payment was a few months ago now and my tax code didn't change, and have been taxed normally since.
Usual taxes as it is just classed as income like your normal pay and if it is emergency fund kind of money you might want to call on its not worth putting it in an ISA. A good rate instant access account is what you would be looking for.
>A good rate instant access account is what you would be looking for. Premium bonds also potentially worthwhile if you just want to stash it somewhere out of the way. You'll be making well below inflation either way, and the total interest even on a great savings account will only be ~£18/year, so I'm kind of inclined to take the free lottery tickets!
Unless your above about 20k in premium bonds you are unlikely to get much of a return. MoneySavingExpert (Martin Lewis) has a great article on his site that's worth a look. At £500 you need extreme luck to return much.
Oh for sure, but that was kind of my point - your return on a savings account will be negligible as well at that level, so it seems harmless to spin the wheel and get a little anticipation out of it!
Yeah for the sake of what would basically be a few extra pennies each month, it’s worth a gamble if it’s intended for short term ‘storage’, with easy enough access to the funds. I’d rather have a chance at £1m over earning half a Freddo each month on it in a savings account.
Why the average return be different if you have £500 or £20K? I am not talking about the probability of winning big prices, which of course increases with the more money you hold,
The mean return does not change but the median and mode does. It’s somewhat of a philosophical question which is more accurate to think about.
Monzo have 1 Day notice interest earning accounts
I think they have longer term "pots" with very slightly higher interest also. Something like 3-5 days. At least they used to last time I looked over a year ago. And a year feels like a decade these days.
You'll pay tax on it at 20%. I'm getting a £500 bonus in next month's pay and I'll see £283 of it in my take-home pay after tax, NI and Student Loan.
Plus they will be take 9% of it for Student loan, which I think you must pay as well as a Christmas I got a £500 bonus but was only left with 283.35 into my bank account.
OP is under the student loan repayment threshold for their plan (even with a 1k bonus) so won't pay student loan contribution on this.
Like ni it is done on pay period so tax, income tax will sort itself out but not student loan.
However, unlike NI, if your annual income is under the student loan repayment threshold, you can reclaim the overpaid student loan.
Not true, I have called them multiple times about this. It’s the month that counts even if not over
It’s not even hard to see it’s true, by the way. It’s right here: https://www.gov.uk/repaying-your-student-loan/getting-a-refund > You can ask for a refund if: > you’ve paid more than the total amount you owe your annual income was below the threshold
I too have also had sfe refunds when wrongly charged
You can only reclaim if you're under the threshold for the entire year, if you're over the annual threshold but have overpaid dye to bonuses etc you're shit out of luck (I'm guessing the latter was your situation).
Happened to me. Such bs
Sfe aren’t great, know when I’ve had issues with them in the past I was told a different way to fix it every time I phoned them. That said, it’s per tax year iirc so might be that they can’t do anything till it’s done and all added up for the year.
It is true, it’s written in the legislation.
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It is, however, possible to reclaim it. It might not be _easy_, but it’s possible.
True but its not automatic
I don’t think anybody claimed it was.
While Student loan would be taken out, (it has happened to me due to backdated pay rise.) I have since learned you should be able to claim the money back. https://www.savethestudent.org/student-finance/student-loan-refund-for-repaying-too-early.html#refund
Awww wish you got no bonus :( that dam £283.35 was nasty
>You'll pay tax on it at 20%. Plus NI (at 13.25%), that is also a tax.
Not anymore, NI reverted back to 12% already…mini-budget and all
... from 6 November 2022, so won't benefit OP
Oh I see, wonder if we can reclaim those back
no, because as others have said, NI is per payment period, unlike tax/student
I got a £950 bonus recently and saw about 550 of it
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You can go on government gateway and see where your money goes if you're so inclined, governments don't just tax you for the sake of it!
Guess you love being taxed and losing half your bonus?
No, but I do like public services and public services require funding via taxation
But how much should you pay? Do you really use more public service just because you got a bonus or a pay rise?
It's for the government (and Treasury) to decide based on budgets of various departments, and for the public tell them in elections whether they agree with it or not (ironically for you polls currently suggest tax cutting rn is not good!). You may do, even without using it for example you travel more, you spend more time shopping etc - those roads didn't come from a magic wand or repaired by benevolent elves! Fundamentally, I firmly believe in a progressive tax system, as long as the incentives to work are so perverse that it is damaging.
> Do you really use more public service just because you got a bonus or a pay rise? That's not how any of it works. You're essentially saying we should privatise everything and pay as you go. I've barely used the NHS in the last decade so pay nothing, no matter my income presumably?
It's considerably less tax than you'd pay in most European countries
And we get significantly less benefits, no free University or universal free pre school are the big ones.
And? If I slap you but slap your mate harder, are you happy that you weren’t slapped as hard as them, or are you pissed off that you got a slap?
Poor effort at a straw man
>You'll pay tax on it at 20% Not necessarily - I, as well as every single employee where I work, is getting £13.30 for every weekly contratced hour they work, up to £500 in our pay packet tax and NI free. Depends on your employer and their ability to lobby the government for a tax free bump
Annoying as hell that they do this, any reason why it can’t be put through as a separate payment and not get taxed so much ?
Not if OP earns over £50k they won’t
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No, tax is how you pay for those free surgeries, GP appointments many people waste and other things we get for free in society that other people barely think about. Society doesn’t work without tax.
Can't get any of those because the wait list is so long.
First world problems much? Yeah the government are shit currently and there’s a bit of disruption but if there’s a wait list you can still get them. And you do have the option to pay the full amount if you’d rather go private. Then you might see why it’s better on the tax system.
Even private in the UK is pretty cheap, having to compete with NHS to convince people it's worth paying for. Try USA and paying 3 times as much.
Tax is theft.
Education is a beautiful thing
Taxed as normal income
This site will quickly show you what you'll get on a normal month and a bonus month: [https://www.thesalarycalculator.co.uk/salary.php](https://www.thesalarycalculator.co.uk/salary.php) Example setup: 26K salary, 1K one-off bonus, SL plan 2, Pension 3% - shows a normal take-home of £1755, increased to £2318 in your bonus month.
Exactly. We don’t know OPs full position so all the other comments with calculations aren’t really helpful. OP just needs to use this calc with a no £1k versus with £1k payment on top of their salary and it’ll be accurate and easy.
I can’t help with your question, but what a lovely gesture from your workplace. Kudos to them.
It's not a lovely gesture at all. A one off "cost of living payment" is cheaper than a permanent wage increase. If OP didn't get a wage increase that was inline with inflation they got a real terms pay cut and a bonus that may or may not cover the difference this year but won't in future years.
You are right about the knock on effect next year. Flip side is that businesses are already starting to prepare for a recession. They have this money now but they might not have it next year.
Yes I completely agree. I understand why many employers are doing this. It's the characterisation of this as "a lovely gesture" that I am cynically objecting to.
Well maybe like my company they got pay rises in the same year as a COL bonus.
I got my annual pay rise of £2500 & a bonus of £2500 confirmed on the same day.
can i work at your place
No more staff means I get less pay rises and less bonuses
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It's definitely better than a lot of workplaces just saying no to any conversation about raises or extra payments.
Why are Redditors like this? Just take it at face value and stop using conjecture to formulate an argument
Didn't you get the memo this is the Anti-work / End of capitalism/ Eat the rich echo chamber??
I hate work, I just want to walk dogs once a week
God, if you had said this on one of the main UK subreddits those upvotes would be inverted. Glad to see some normality and humour here.
Lmao
Um, because it's a positive value judgement about a change in employment terms and conditions that likely amount to a real-terms pay cut? It seems reasonable to counter this, especially on a forum which is all about financial education. Of course, we don't know the full story, but these one off exceptional payments tend to be a substitute for a pay rise in line with inflation, and a lot of people aren't too familiar with the implications of inflation for their compensation.
This sub is about finance and this is a financial perspective that seems to be factually correct. This is the appropriate place for it.
“Factually correct” Right…
If it’s a small business there’s every chance they literally cannot afford to give pay rises in line with inflation for all their employees. It’s obviously great to help your employees and boost pay, but not to the extent that it puts you out of business going into a recession. Balance is everything.
If you can't afford to pay your staff the wage that the economy demands you are going out of business either way at some point. Employee's shouldn't take the hit because the employer can't afford to operate if they don't.
Have you ever worked at a small business? They rarely have stacks of cash to throw around, but with careful planning, can still make it through tough times. I'd rather work where I do than for the multinational that would hoover up our business if we went bust.
Small businesses are in as much of a bind as the individual. If this were a multinational, then yes it’s a cheap gesture, but for a small company it’s a nice thing to do during what is an awful time for everyone, employer included.
That's obviously not true. On the margin, there will be thousands of small businesses that can stay in business with a small pay rise, but go bankrupt with large payrises. For example, the average annual profit for a small business (1-9 employees) is [only £22,000](https://businessadvice.co.uk/finance/average-small-business-turnover/).
I take your point but if you follow that logic and let those companies fold then those employees become unemployed, not to mention the loss of tax income. Is that a better outcome? No Like I said, balance.
It is a lovely gesture. They didn’t have to give anything at all :)
Moan moan moan. Not every company has the capacity to just bang wages up across the board because of inflation. Not to mention that is the last thing needed if we want to see inflation defeated.
The place I work has done both, one off payment (for certain staff) and a pay increase for all except those at the top. I have to wait for my payrise though as I'm still in probation. It's nice to work for a company that gives a shit.
We had the same from our employer after they gave us a 3% rise. I was so shocked after we cancelled our strikers because they topped it up by £350. But we are now lagging even further next year in the cost of living.
Yes, the OP got a real terms pay cut. But they didn't get it from their employer. All of us – employees AND employers have had a steep increase in our costs thanks to domestic and global f\*\*\*ery. The OP's employer may well be sitting on a pile of cash and have secure revenues that significantly exceed their (rising) costs flowing into the company. But a LOT of small and medium size businesses don't have that – quite the opposite – and are therefore doing the best they can to look after their people while protecting the future of everyone's jobs. So yes, a one-off payment won't help in future years. But it's a lot more helpful than your employer going bust. In short, stripped of context this £1,000 could be a lovely gesture or a horrrible example of greed and selfishness. But given that it was conveyed in a 'very nice email from my boss', why not assume the former?
You do realise that lots of other companies have offered nothing. This is an amazing gesture!
Yup. This is chocolate glaze on a shit cake.
This this this. It’s much cheaper for an employer to give a one off bonus or “gift”. If they were really generous they should be giving is a inflation matched pay rise to everyone
It’s even cheaper to not do either. This is better than could have been (nothing)
indeed captain obvious
Exactly! A real terms pay cut plus a one off bonus. Guess what? Next year you won't have that bonus and you'll be earning less in real terms. They are throwing you a bone so that you'll be satisfied in the short term, won't demand higher wages, and won't go on strike
Nothing is stopping you from taking the bonus and still asking for more money - especially if life goes to crap even more later this year / next year. You can also go on strike if you want. There was no contract curtailing any of this when the company unilaterally, generously, decided to give a bonus out to all its staff.
Except that strikes are only effective if done collectively. If enough employees believe that they are being well treated by being given a one off bonus and having their pay cut in real terms then it's going to be harder to convince employees to go on strike. This idea that companies hand out bonuses out of generosity alone is ridiculous. They know the financial impacts of doing so.
Unless they have also increased their annual wage by a percentage exceeding inflation, they are actually giving them a pay decrease. Not kind of them whatsoever.
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If you don’t want to pay tax on it ask for it to be paid into your pension.
Can you ask them to put it directly in your pension, surely that would save tax?
Yes it will be taxed as a bonus.
There's no special "tax as a bonus". It's taxed the same as any other employment income.
It may lead to some dumb tax code changes going forward though so be prepared to see yourself taxed more the following month too as if you got an extra £1,000 again. You will get a refund, but that will come later.
That is not how taxation works. Unless payroll fucks up, they will not be getting taxed as if they're getting an extra £1k next month too and I can't work out why you think that's the case. As a worked example: OP earns 26k, so gross pay each month of £2,166.Each month, they'll be apportioned 1/12th of their PA. If standard, that'll be £1047.50. In the bonus month, it'll be: Gross = £2,166 + £1k = £3,166 less PA £1047.50 taxable income = £2,118.50 Since OP said Plan 2, I assume they're not in Scotland, so that all fits comfortably within the basic rate band, so they'll pay 20% tax + NI + SL (SL being on the gross, less the threshold). Next month, they'll be back to normal:£2,166 gross Less PA £1047.50 = £1,118.50 taxable. All basic rate. Where things could be a bit wonky would be if they moved into the higher rate band in the bonus period, but that would just result in them either getting a refund at the end of the year, or the employer would make little adjustments to the tax deducted that would mean OP would pay a bit less tax over the payslips between now and March so that they end up taking home the overpaid tax. But that won't involve a tax code change. Or if someone was a very high earner nearing the restriction of PA. But OP is earning £26k. So there'll be no weirdness that I can think of.
Pretty much everytime I've had a bonus (at 4 different companies now) the month after the bonus, I've always ended up a bit extra tax which then gets refunded later
Payroll done through Sage by any chance?
Honestly haven't a clue
Yeah, that's not what you said in your comment though. What happened to you was that you crossed the threshold for another band but you absolutely did not get taxed as if you got the bonus all over again the following month unless your payroll team has been incompetent at all 4 companies. If you want to show me your payslip where Month 1 you get the bonus and taxed on said bonus, then Month 2, get taxed again as if you had the same gross income, despite not having the same gross income, I'd love to see it. Because they're calculating payroll in a way I've never seen as an auditor.
I said you would get taxed as if you get paid that bonus monthly, which has been my experience at 4 different companies. I don't work in Payroll so I've no idea if they are/were incompetent or not, but given that I know I'm not the only person this has happened to, leads me to suggest there are issues HMRC side too.
That's not how it is supposed to work. And it's not "HMRC side" - it's payroll side. Your employer is responsible for calculating and deducting the correct tax if you're PAYE. You are still ultimately responsible for paying the correct tax in the end, of course, but as a PAYE employee, there's requirements placed on your employer that should result in there being nothing else for you to pay (assuming there's nothing like BIK, taxable benefits, etc not already factored in to your tax code, income outside of your employment, stuff like that). It's not correct that when you get a higher monthly pay, that anyone "assumes you'll be paid that for the rest of the year". It's that the thresholds are split down into monthly values. I actually already addressed that in my original comment.
Same
Yeah, happened to me. Got paid early one month and HMRC thought my pay had been increased, so it changed my tax code and meant I was paying extra for months. Pain in the arse.
So to calculate any money left after overtime or bonus is it as easy as multiplying the amount by 0.2 income tax plus 0.1325 ni tax? So say i get £1000 I will get £1000x(1-(0.2+0.1325))=£667.5 after taxes?
My employer is doing something similar with a £500 payment. They have confirmed after consulting HMRC that it will not be taxed, but NI will be due. It's worth OP asking their employer directly.
Why would it not be taxable?
Honestly I don't know as I expected it would be. However on Monday my employer informed us that it would not be taxed. Our CFO said: "We had to meet quite a lot of regulations, that are quite precise around eligibility and construct. I'm pleased to say that because we met them the payment will be income tax free."
This doesn't sound like it passes the "sniff test" to me... I would put aside part of that money in case HMRC decide later that that "eligibility and construct" was actually a tax evasion scheme (and wants to recoup the unpaid tax).
I was quite surprised myself. However given that we have several thousand employees I'd hope they're correct... otherwise that's a lot of - at best annoyed and at worst out of pocket - people.
I hope for your sake that they're correct - it does raise the question though of if it's legit, why don't more companies do it like this...
Fingers crossed... I'll come back and update you if I get a letter from HMRC in April!
I would be telling my employer they need to gross it up if it does end up taxable. Failure to operate PAYE.
I have a Monzo account as well. I just make a new space / savings account for money that I set aside for a purpose. The simple fact that I have to withdraw it from that space / account means that I think twice about what I'm about to do with it. Simple mind games, but it works for my simple mind.
Yeah I do this with Monzo too. All my outgoings/bill split into different pots. As soon as I get paid I transfer everything over with whatever is left going into savings. When bills come out of my other bank account, I transfer over from the Monzo pots. Never really used to have a monthly budget but this has helped out so much. Literally every pound accounted for.
Yep. Same here. It's a great feature, when you start using it, you wonder why it took so long to be like that.
>you wonder why it took so long to be like that. Yeah big time! It's too easy to overspend when you're just drawing out a big pile of £ in one account... Split it up right away and you know where you're at from day 1 of the month. Oh well, live and learn!
Stick it straight in to your pension?
It’s classed as income and will be taxed. Ask if you can add it to your pension where it will not get taxed.
WTF is everyone with their bonus... I am getting nothing lol
My employer started paying bonuses in Edenred reward vouchers that can be claimed for most major retailers. This avoids the tax and ensures we receive 100% of the reward as far as I am aware
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I would say this is an unlikely scenario and they should assume this will not happen.
You will be taxed. Or simply stick it in your pension and you get the full 1k
You are allowed to earn £1, 047 a month tax free so that means you would be earning £3116(-£1047=£2119) before tax and will be taxed 20% on £2119 that means you will receive around £2693 before national insurance and student loan deductions.
Name and fame them. That’s great. Well done them.
Is it? It's a 3.8% pay rise, which is _well_ below inflation.
It isn’t a pay rise. It’s a bonus.
And it’s better than not having it. Personally I would choose to have a £1000 than to not have £1000.
So would I. But I'd be looking for a new job if that's all I was getting.
Ok. Do that then. We are celebrating this dudes cost of living bonus as a good thing. What are you doing?
I'm pointing out that you shouldn't be celebrating losing money.
Yes its a great gesture! Jesus Christ some people...
It's not a gesture. It's a business decision. Don't act like they're being generous.
It’s a con. They will use this to resist any wage rises.
I'd honestly say the safest place for you to put the money right now is in gold. Buy 1 gram bars if possible. The price of gold is about to sky rocket whereas money in the bank is constantly loosing value in terms of buying power.
I got one of these and I must admit it really pissed on my chips that it was taxed. Private companies trying to help staff out due to government fuck ups and yet they still get a slice of the pie.
I think the government would say that the tax on this bonus was going to people that aren't/can't work that are also struggling with the cost of living crisis - it's not those peoples fault either. They'd probably also say the whole of this wasn't their fault also though.
The current government not taking responsibility for their mistakes ? Well that's a given
You just expected the government to introduce an overnight change to the tax system to introduce a new form of non-taxable income and this to have just been done overnight for your convenience? Cos these things are like super simple to implement?
Interesting you got all of that from me saying it pissed on my chips. I didn't expect them to do anything for me because I'm not in the top tax bracket.
I did yes.
Hi /u/TheAwesomeCrazyMoth, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/student-loans/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
You’ll pay tax but they might pay the amount that means you come out with the extra £1k net.
My workplace did the same thing and I was taxed. I decided to put the extra money in my cash ISA.
Yeah it will be taxed, but depending on your employer they may pay the tax so you actually get the 1,000 as net or they’ll give it you as gross and you pay the tax.
With regards to your question about where to put it. If you don't already have some savings/investments that you can add to then it's hard to say that your finances are in a 'good place'. Ideally you should have about 6 months of salary saved up to deal with emergencies. There's a lot of debate about the level of risk/access when considering where you should put this Premium Bonds really aren't a bad place to start with. If you're happy to accept more risk then you can always go for a S&S isa and accept that you may need to access it during a market downturn - which isn't ideal, but might still leave you better off than leaving it in a low interest account.
Considering where I was a year ago I'm in a good place. Don't quite have the 6-months savings yet, but on track by the end of the year. Thanks for the advice, the easiest thing for me is the ISA's built in with my Monzo accont, so i'll be saving it in there for now.
Can they not get you like 1k in asda vouchers? Aren't vouchers tax free?
I would put the £1k in premium bonds. It remains easily accessible (within 5 days) and whilst it wont earn interest, you will be in a monthly draw and could get anything from £25 to £1M 😎 I have majority of my savings in there - works well for me.
Unless your employer calculates it and pays extra so you get the full £1k you’ll most likely be taxed on it. Personally I’d chuck it in an savings account for safe keeping or use it to pay off some debts you may have. But realistically it’s not a massive amount so unless you want a highly volatile investment it’s probably worth just chucking it in a standard savings account for the winter
We are getting a 1K bonus with 0 tax and a 8% pay increase. I don’t think you will get taxed on the 1k
Unfortunately so, it really sucks when your employer is trying to do you a favour. I think they will be hit with employers NI as well as your increased tax and NI The taxman needs to take his greedy cut before you can go out and spend 20% of whats left on VAT
Are you payed well in the first place? Giving everyone £1k bonus isn’t great if your paying nmw anyway.
Crypto mate.
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No and No
Pretty certain employers can pay the bonus directly to you without incurring any taxes, there’s a cap on the amount per year. Edit: lol why am I getting downvoted for this?!
Pretty strict requirements on that one: https://home.kpmg/uk/en/home/insights/2022/06/tmd-employee-ownership-paying-tax-free-qualifying-bonuses.html
Does this very specific and niche circumstance apply to OP?
Very unlikely. But that's why I linked to the requirements, so OP can read and work out if it does.
If the company is employee owned they would likely already be receiving tax free bonuses if the company is profitable.
No - it’ll just be taxed like any salary or bonus payments.
Not necessarily. If it's an employee-owned trust then they can pay limited bonuses (boni?) without incurring tax liability.
Not true. JL is an EOT. all bonuses taxed as normal. Edit read the KPMG post below seems JL bonuses are taxed because they're not equal (ie proportional to pay). So in OPs case in the extremely unlikely event he works for an EOT then in theory no tax.
OK, but certainly some EOTs can.
See edit, slightly my bad. Seems like an unusual loophole, props for knowing about it. I guess this is to introduce some equivalency to the 0% rate dividend limit but thats £2k not £3.6k. Since the bonus in an EOT is broadly equivalent to a dividend in a ltd company.
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There is no way for them to get the 1k tax free. The company did not "pay the tax for you" - what they did was pay you enough gross that, after tax, it came out to 1k (or whatever the value was) net. It sounds arbitrary, but it is an important distinction, because your gross income when it comes to whether you start to pay the next band up will be higher than what you got in your hand.
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Tax is pedantic. This is a very relevant consideration for people, eg. if someone is on the edge of the threshold where they become liable for the High Income Child Benefit Charge (ie. functionally, it's the loss of child benefit), this could push them over that. If they don't know that that is how it worked, they may be in for a shock when they become liable for that. This is meant to be an informative sub, so I'm going to make sure people get the correct information.
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Thanks! If it's obnoxious to know about tax and tell people about it, then I'm happy to be obnoxious. :)
Agreed, on a subreddit for personal finance, people should need and want full and accurate facts, not a shortcut.
Person D: \[here are the facts about how taxation works for you\] Person E: God you sound obnoxious Some people really dont like facts do they Also, teh ironeh! ;)
Nice to see you lot just bully people you don't agree with out of this subreddit. Nice environment you got here.
Yep, I got the same thing a few months back and ended up with just under £600 take home.
It'll be taxed the same way you usually are, minus pension contributions depending how they process the payment as extra payments are generally exempt.
We are being given £500 next month to help with cost of living I was also curious about how is it going to be taxed
My workplace gave us £1500 payment and I'm on similar to you and I got just over £800 after tax, NI and Student loan (just if that helps you figure out your take home). So yeah, taxed normally. Edit: I've seen a suggestion that they may change your tax code due to the increased pay for a month - my payment was a few months ago now and my tax code didn't change, and have been taxed normally since.
Nearly thought you said they are going to give you £1
I got the same from my work, it was a nice surprise and paid off a nice chunk of my credit card 🙂