Do your employees make monthly provision for their tax on annual bonus?

If your allow this on your payroll, please ensure check their year-to-date bonus provision before making any annual bonus payments this December. 

What is provision for tax on annual bonus?

An employee is allowed to spread the PAYE on a bonus over the tax year (remaining periods of the tax year), therefore, a portion of the employee’s bonus is included in his/her monthly PAYE calculation to compensate for the PAYE on the bonus when the bonus is paid.

This is called ‘provision for tax on annual bonus’ where the employee will pay extra PAYE on a monthly/weekly portion of the bonus instead of paying all the PAYE when the bonus is paid to the employee. 

Why is it important?

• You want to establish that they haven’t under provided (or over provided) for their annual bonus
• This is especially important for employees who may have under provided, as when the bonus is paid, it will still be paid tax free on payroll, however at tax year-end (February) or termination of the record, the payroll system will recalculate and finalise the year-to-date tax including the bonus. This will result in employees having to pay in unexpectedly, in February 2023
• If an employee received an increase that might impact on the bonus payment amount, the provision for tax on annual bonus must be revised to ensure that the employee is not impact at the end of the tax year

Avoid any unwanted tax surprises and check your payroll bonus provision today! 

Bonus Provision FAQs:

• What is a provision for tax on annual bonus?
• Which report can I print to view employee bonus provisions (tax on annual bonus)?
• How do I setup a Method of Calculation for Provision of Tax on Annual Bonus?
• How do I recalculate tax on bonus (bonus provision) when an employee is receiving a bonus amount less than originally planned for, or when the employee will not be receiving a bonus payment?

Browse our Sage Knowledgebase for more articles on bonus provision. 

Should you require assistance with the setup and calculations, you can reach out to your Business Partner consultant.