Salary + Bonus

This strategy should also be fairly familiar to most. Using a salary and paying ourselves a bonus at some point during the year is common.

The biggest benefit of using a lower salary and a bonus is that it gives flexibility to the business, as a bonus can be paid at any time during the year.

As with the Salary only strategy, we all generally benefit from our personal allowance of £11,500 before any Income Tax is applied.

As bonuses are essentially viewed by HMRC as salary, the two are added together, and therefore the total sum is taxed as per the table below.

Income Tax Table

For our calculations, we have used Mike’s salary of £45,000 per year and added the bonus of £50,000. We have again used the Tax Code of1150L, which is what most employees will have as their PAYE tax code. We have also calculated the NlC for this salary and bonus and have included it below.

Salary + Bonus Calculation