Pay now or pay later, what would you do? Bonuses and income tax

We’re approaching the end of the financial year which for many companies will mean bonus season. During this time, most of us stand back in admiration or disgust and read about the six figure bonuses that are being handed out like Willy Wonka’s golden tickets. And there is more good news! Some companies are considering whether to pay their bonuses after the 6th April when the top rate of income tax is reduced to 45%, meaning that someone expecting a £200,000 pay-out will save £10,000 in tax.

Some companies have already been openly criticised by intending to defer the payments while others have received significant pressure to ‘do the right thing’.

Fortunately we work at the heart of the SME community so we are adverse from bonus politics. We’re not saying that we disagree with a bonus system – if you work hard and hit your targets it is nice to be rewarded. But publicly paying staff hundreds of thousands of pounds when the company is underperforming, and then deferring the bonus payment to avoid contributions seems immoral.

We want to know what you would do if you were in charge of giving out bonuses?

Option A: pay your employees their bonuses in the current tax year and face raised eyebrows from your own staff at having to pay more tax or option B: pay your employees their bonuses in the 2013/2014 tax year and open the company up to pressure from the HMRC and the financial services authorities. With option B you may also receive added public pressure. So what would you do? Option A or option B?

If you like the way we think – you will like the way we work.

AIMS Accountants for Business are the largest independent association of professionally qualified accountants in the UK specialising in accountancy for small, local and independent businesses. AIMS are no ordinary accountants and we are more than just number crunchers! Find your local AIMS Accountant.