I was paid a substantial bonus of £25,000 in my March salary which brought my earnings for the 2018/19 tax year to £124,000. I was disappointed to see the amount of tax taken off. I have been a 40% taxpayer, but I seem to have lost more than 40%. Is there anything that I can do now to get some of the tax back?
It sounds as though you have fallen into the 60% tax trap. The official UK income tax rates on non-savings income are 20%; 40%; 45%. Each individual has a band of income that is tax free up to the personal allowance which was £11,850 for 2018/19. If your adjusted net income exceeds £100,00 the personal allowance is reduced by £1 for every £2 of income in excess of this limit – so someone with adjusted income of £123,700 or more will not be entitled to the 2018/19 £11,850 personal allowance. When this happens that slice of income between £100,000 and £123,700 is taxed at an effective tax rate of 60%. There are tax reliefs available which can operate to reduce higher rate tax, but most require some action to be taken within the tax year, the most popular being pension contribution. There are a few tax reliefs that can be related back to a prior tax year that you could consider. For example, charitable donations can be carried back to the tax year before the year of payment. A charitable donation reduces the level of net adjusted income and you can claim back the difference between the basic tax rate of 20% and the rate paid by you at 40% or 45%. The election to carry back must be made on or before the self- assessment return for the earlier year and, in any event, before 31 January following that year – so donations made between 6 April and the following 31 January can be carried back. If you are already committed to making gift aid payments to your favourite charity it may be worth making the carry back election. Also, an investment into an Enterprise Investment Scheme EIS, or Seed Enterprise Investment Scheme SEIS, can by election be treated as though it was an investment made in the preceding tax year. Income tax relief is available on the cost of shares subscribed for at 30% for EIS and 50% for SEIS. There are complex rules that apply to EIS and SEIS qualifying companies, so you should speak to an independent financial adviser to ensure that such investments are compliant and suitable for your needs.
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