Hi How can I avoid paying 40% tax on a 40K bonus. Please
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax
replied 6 years ago.
Thanks for your question.
Sadly in your income for any one month exceeds £3656 then 40% tax is going to come into play - however if you then use this money to consider adding into a pension scheme then some of this money will be given back to you through tax relief at 40%
I would urge you to speak with someone who can give you the best possible advice as to what can be contributed and if you have a company pension scheme - whether you wish to consider this route or start your own personal pension.
Sadly spreading this payment isn't an option as your employer is obliged to tax
it on the date it is due to be paid.
The other consideration, is dependent on your level of income overall for the year, then the question is will 40% be due overall on this amount - so for example if your salary is £35,000 a year then of this 6475 is free of tax leaving £28525 chargeable to tax at 20% only.
You then still have a balance of £8875 basic rate band so only £31125 of this bonus is effective for 40% tax, but it will be charged initially at 40% for the month it is paid, then repayments made each month through your salary to repay some of the overcharge.
Hope these few ideas give you food for thought, but there is no way to avoid the 40% tax charge -Source: www.justanswer.com