If an employer pays an employee a bonus or commission, it’s seen by Her Majesty’s Customs and Excise (HMRC) as part of the pay for the job, with a liability to pay tax and National Insurance (NI) contributions on them through PAYE. Depending upon the nature and regularity of the bonus or commission payments, HMRC has different ways of recording the payments and checking that relevant tax and NI has been paid. HMRC will seek specific information dependent on how the bonus or commission was paid.
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Where it was paid or available in every pay period, HMRC will include this as normal earnings. For example, weekly paid employees might get a bonus every week, paid with the regular weekly pay. Where it was included as normal earnings, no further information should be necessary, as it should be clearly recorded on the employee’s payslip and subject to tax and NI deductions and payments as additional wages or salary.
If however, in addition to the regular payment a secondary bonus or commission is also paid, but only occasionally, HMRC will need that as a separate figure. For example, a weekly paid person regularly earns commission that is paid within their weekly or monthly pay but also receives a bonus quarterly or yearly. The commission is included with the normal earnings and PAYE calculations, but the more irregular bonus payment will need to be recorded and the total additional amount received over the full year, 52 week period, is required by HMRC and will be calculated to a net weekly figure.
Where any bonus or commission is not paid regularly, HMRC need to know how much was paid in the last 52 weeks. For example if a monthly paid person gets bonus and/or commission payments quarterly, HMRC need the amount paid in the last 52 weeks. If this is a gross figure, HMRC will deduct tax and NI and calculate this into a monthly net figure in order to arrive at a normal weekly average.
However a bonus or commission is paid during a tax year, it will be subject to tax and NI and the net that is thrown over to catch all payments, irrespective of their frequency, is wide enough to require that all such amounts over the full 52 week year need to be evidenced to HMRC. Even a one-off seasonal or goodwill bonus needs to be recorded as pay and is liable for tax and NI within the year.