PAYE tax code issue

Tax code problem because bonus is paid in month 1

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My client has an annual pension of £34K, an annual bonus from his family company of £9k and rental income of £5k.  It seems simple to deduct rents of £5k from the personal allowances of £12.5k to give a tax code of 750L to go against the pension; with tax at basic rate on the annual bonus from the company.  But the bonus is paid in Month 1 and not at the end of the tax year.  When RTI notes income of £8788 in month 1, understandably it projects income of £105K in the year hence a tax code of K5133 to collect the projected higher rate tax.  I ring annually and explain this, as otherwise my client would lose half his pension to tax and probably be in financial difficulties. On request HMRC adjusts the code to 750L.  I am told the only way HMRC can do this is to treat the company income as having ceased at the end of month 1.  Apparently I should notify HMRC at the beginning of April 2021 that this source has restarted, otherwise there will be unspecified difficulties! Presumably I will then need to ring again at the end of April once the bonus has been paid, to explain that the source has ceased again in order to go through 2021/22 with a sensible tax code against the pension.  This seems a lot of work to me for a small fee for a simple basic rate tax return.  HMRC told me that they can’t mark the file that this is an annual bonus.  Does anyone have a solution for how to simplify this?  It seems moving the date of the bonus payment is not within my client’s control.  Do you agree that I am under an annual obligation to notify that the source had restarted, and if so why?

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By paul.benny
28th Apr 2020 12:28

Has he actually tried to alter the timing of this bonus? Do other employees (of the family company) have a similar problem?

I'm also a little mystified about this bonus from a company when you don't mention any other salary. What's he doing to earn the bonus?

If RTI creates an extreme tax code after month 1 submission, does it not correct after month 2? I don't know but would seem that it might. I find it difficult to believe that he would be in financial difficulties until the tax code stablises.

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RLI
By lionofludesch
28th Apr 2020 13:10

Don't pay the bonus in April.

This is a problem easily solved.

Even paying it in May or June would lead to a less punitive code.

Alternatively, you can book your annual phone call to HMRC.

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