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Royal Bank of Scotland chief executive Stephen Hester to trouser 963k bonus

Grit, you say you don't really know the tax system. Well I do. It's pretty much impossible for anybody *not on benefits* to end up paying more as a result of moving up a tax bracket. I would say impossible, but I add the "pretty much" to allow for the possibility of a situation I have never heard of and can't imagine.

For a brief moment in 2010 there was the possibility of a new rule that might cause it if you went from exactly the right salary (about £120k) to exactly the right salary (something like £125k) whilst also making exactly the right penbsion conbtributions (above something like £40k). But that rule change never happened in the end.

Other than that, I can't think of any such poosibility unless, as I say, you are also on benefits, which I doubt applies to people supposedly turning down massive bonuses.

I think if somebody wants to seriously persist with the claim that it is possible, they really need to also explain the general mechanism under which it can happen. Otherwise, it's just a matter of faith, which I lack.
 
Grit, you say you don't really know the tax system. Well I do. It's pretty much impossible for anybody *not on benefits* to end up paying more as a result of moving up a tax bracket. I would say impossible, but I add the "pretty much" to allow for the possibility of a situation I have never heard of and can't imagine.

For a brief moment in 2010 there was the possibility of a new rule that might cause it if you went from exactly the right salary (about £120k) to exactly the right salary (something like £125k) whilst also making exactly the right penbsion conbtributions (above something like £40k). But that rule change never happened in the end.

Other than that, I can't think of any such poosibility unless, as I say, you are also on benefits, which I doubt applies to people supposedly turning down massive bonuses.

I think if somebody wants to seriously persist with the claim that it is possible, they really need to also explain the general mechanism under which it can happen. Otherwise, it's just a matter of faith, which I lack.

Fair enough, in her last job though, ms grit was offered a bonus-like situation. However the requirements to become eligible joined with the jump in money (and consequent tax changes) it ended up not being worth her while.

We are all using very broad descriptions for quite complex situations, which I think can cause some trouble when discussing it.
 
Fair enough, in her last job though, ms grit was offered a bonus-like situation. However the requirements to become eligible joined with the jump in money (and consequent tax changes) it ended up not being worth her while.

We are all using very broad descriptions for quite complex situations, which I think can cause some trouble when discussing it.

It's be interesting to know the details of this. In terms of income tax it is simply impossible because of how it works..
http://www.hmrc.gov.uk/rates/it.htm for the brackets, I'm just going to approximate them for ease of maths..

There is an allowance of £7,450 on which you pay no tax. The next ~£40,000 is taxed at 20%. This means if you earn £47,450 you get pay tax of 20% on £40k and 0% on £7k. From there up to £150k it's taxed at 40%. So if you earn £50k, you pay 40% tax on ~£2.5k, 20% tax on £40k and 0% tax on 7k.

so at £47k you will pay £8k tax total. At £50k you will pay £9k tax total - you don't lost out at all, you are still earning an additional £1.5k in take home pay with that £2.5k bonus, even though it's at the higher tax bracket.
It's not ever the case that your whole income suddenly becomes taxable at the higher rate.

When they were cutting child benefits off for people earning above whatever it was a while back, it was pointed out that there would be a point of income where you would lose out if you took a pay rise, because you would lose the benefit. The same could be true for tax credits, housing benefit and other in-work benefits, though working tax credits are structured so that doesn't happen, and I kind of assume other benefits also are though I've no experience of them.
 
That's retarded

Though given that statement I suspect your story is complete BS, despite it being incredibly odd that someone would want to pretend to be an ex banker.

Er, when did i say i was a banker? Im a graphic designer. at the time working for the legend that was AIG. everyone got bonuses. mine was about 10%. altho i was taxed about 50% on it and taking it would've tipped me slightly over into a tax bracket that as i understood it would've left me worse off.
 
Er, when did i say i was a banker? Im a graphic designer. at the time working for the legend that was AIG. everyone got bonuses. mine was about 10%. altho i was taxed about 50% on it and taking it would've tipped me slightly over into a tax bracket that as i understood it would've left me worse off.

I really don't see how it could be possible that you would have been worse off. It's surprising that in an organisation like AIG, there was no-one around who could explain how the tax system works.
If you go into a higher tax bracket, you only pay the higher rate of tax on the amount that is over that threshold, so you can never be worse off as a result of a bonus/pay rise - you won't get to keep as much of it as you would if it didn't take you over the threshold, but you won't earn less over all.
If you were going to be taxed at 50%, you would still have kept 50% of the bonus, the tax you pay on your normal pay packet would be unaffected.
 
How would it leave you worse off?

I was advised i'd go into a different tax bracket if i took it. tbh, im retarded when it comes to finance so that may have been wrong. bonus season was definitely not limited to the boardroom tho. not sure why the media isn't addressing that - RBS payed out £1bn in total last year.

the system is fucked. i couldnt believe it when i found i was getting a bonus, having not worked in the City before.
 
I might need reminding of how this works but.... if Hester got the bonus he'd pay 50% PAYE - assuming he's not on the self-employed racket - while RBS will pay 22% corporation tax on the increase in profits gained (from not giving him his bonus) i.e. the taxpayer is worse off from this and the shareholders better*. I'm not completely sure of that?

*shareholders include the taxpayer, which will avoid the taxpayer shooting themselves in the foot on this occasion
 
I was advised i'd go into a different tax bracket if i took it. tbh, im retarded when it comes to finance so that may have been wrong. bonus season was definitely not limited to the boardroom tho. not sure why the media isn't addressing that - RBS payed out £1bn in total last year.

the system is fucked. i couldnt believe it when i found i was getting a bonus, having not worked in the City before.
Someone was yanking your chain.
 
I was advised i'd go into a different tax bracket if i took it. tbh, im retarded when it comes to finance so that may have been wrong. bonus season was definitely not limited to the boardroom tho. not sure why the media isn't addressing that - RBS payed out £1bn in total last year.

the system is fucked. i couldnt believe it when i found i was getting a bonus, having not worked in the City before.

Your advice was wrong, unless you have some extremely peculiar circumstances that would mean you lost benefits/tax credits. If you find yourself in this situation again, take the bonus, you will end up better off. I've written out an example above to show how it works.
 
I might need reminding of how this works but.... if Hester got the bonus he'd pay 50% PAYE - assuming he's not on the self-employed racket - while RBS will pay 22% corporation tax on the increase in profits gained (from not giving him his bonus) i.e. the taxpayer is worse off from this and the shareholders better*. I'm not completely sure of that?

*shareholders include the taxpayer, which will avoid the taxpayer shooting themselves in the foot on this occasion

Because it's not just about whether the taxpayer is better off or not, it's about whether someone who is in charge of an institution that bears a large amount of responsibility for the mess we are in should be getting huge sums of money when most people are still suffering for the mistakes that institution has made.

(and I'm not sure but your scenario sounds about right, in fact RBS will probably pay a whole lot less than 22% corporation tax.. but since we own 80% of RBS, I would think the taxpayer would be better off if that £1m got paid out in dividends, as we'd get 80% of it...)
 
Er, when did i say i was a banker? Im a graphic designer. at the time working for the legend that was AIG. everyone got bonuses. mine was about 10%. altho i was taxed about 50% on it and taking it would've tipped me slightly over into a tax bracket that as i understood it would've left me worse off.
When you go into a higher tax bracket (40% on £35,001 to £150,000) you only get taxed at a higher rate on the earnings above £35,000. The initial £35,000 still gets taxed at 20%. In order to get taxed at 50%, you'd need to be earning over £150,000. And even then, only on the amounts over £150,000.

To put it another way, if you earned £35,500, you'd get taxed at 20% on the first £35,000, and at 40% on the £500.
 
It's be interesting to know the details of this. In terms of income tax it is simply impossible because of how it works..
http://www.hmrc.gov.uk/rates/it.htm for the brackets, I'm just going to approximate them for ease of maths..

There is an allowance of £7,450 on which you pay no tax. The next ~£40,000 is taxed at 20%. This means if you earn £47,450 you get pay tax of 20% on £40k and 0% on £7k. From there up to £150k it's taxed at 40%. So if you earn £50k, you pay 40% tax on ~£2.5k, 20% tax on £40k and 0% tax on 7k.

so at £47k you will pay £8k tax total. At £50k you will pay £9k tax total - you don't lost out at all, you are still earning an additional £1.5k in take home pay with that £2.5k bonus, even though it's at the higher tax bracket.
It's not ever the case that your whole income suddenly becomes taxable at the higher rate.

When they were cutting child benefits off for people earning above whatever it was a while back, it was pointed out that there would be a point of income where you would lose out if you took a pay rise, because you would lose the benefit. The same could be true for tax credits, housing benefit and other in-work benefits, though working tax credits are structured so that doesn't happen, and I kind of assume other benefits also are though I've no experience of them.

I'm not going to get into ms grit's financial business on urban, obviously. However in essence the type of work that was required to earn the bonus was significant. Technically the additional money didnt leave her worse off, but the amount that was lost in tax was huge. Once you take into account that extra work and compare it to the take home increase, it was a waste of time.
 
I might need reminding of how this works but.... if Hester got the bonus he'd pay 50% PAYE - assuming he's not on the self-employed racket - while RBS will pay 22% corporation tax on the increase in profits gained (from not giving him his bonus) i.e. the taxpayer is worse off from this and the shareholders better*. I'm not completely sure of that?

*shareholders include the taxpayer, which will avoid the taxpayer shooting themselves in the foot on this occasion

He was gonna get shares, not cash. Not subject to PAYE, not sure what tax you pay on a bonus of shares, but I'd imagine it's less than PAYE?
 
I'm not going to get into ms grit's financial business on urban, obviously. However in essence the type of work that was required to earn the bonus was significant. Technically the additional money didnt leave her worse off, but the amount that was lost in tax was huge. Once you take into account that extra work and compare it to the take home increase, it was a waste of time.

if your bonus tips you in to a higher tax bracket you can end paying a lot more tax than you're used to and you may consider it not worth the extra work required to get a bonus, but you will always end up with more money than not having a bonus.

If you think that extra tax is a pain, try paying your employers' NI contribution on top of your own :p
 
He was gonna get shares, not cash. Not subject to PAYE, not sure what tax you pay on a bonus of shares, but I'd imagine it's less than PAYE?
When you receive the shares, that counts as income and you pay tax on it at the current share price.
 
I don't know, but since it counts as income, I would assume so.

Of course, at that level the NI will be just 1%. Still £10k, mind.

Hmm, there must be some advantage to taking shares not cash, like taking a dividend is beneficial. Or maybe just that he shares will increse in value faster than inflation, if RBS ones don't then that bank really is fucked.
 
There's an advantage to the employer in giving shares: it aligns the interests of the employee with the company. Well, that's the theory. In practice, not so much.
 
Well let's be conservative and say you get a savings account that gives you 5% per year - that's £50k per year...

You would be doing well to get 5%, that approach also doesn't account for inflation among other things. Its also very dependent on how old you are obviously.
 
When you receive the shares, that counts as income and you pay tax on it at the current share price.

I think he'd have to pay income tax/national insurance at the point when he became eligible to sell them I believe. The shares were to be tied up for a couple of years - it was really a deferred bonus. So he'd pay 50% income tax + national insurance at that point depending on their value then - he'd also have to pay 28% capital gains tax when he sold them. Quite a hefty tax bill - I'd assume other banksters would use offshore accounts or pay some of their bonuses into trusts etc... but I guess with guys like this he'd be under too much scrutiny to get away with something like that at the moment.
 
Er, when did i say i was a banker? Im a graphic designer. at the time working for the legend that was AIG. everyone got bonuses. mine was about 10%. altho i was taxed about 50% on it and taking it would've tipped me slightly over into a tax bracket that as i understood it would've left me worse off.

Your post seemed to indicate you were, talking about bonuses from when you were in the city... Though as you aren't/weren't I apologise for calling you a banker.

You did however, it seems, get some dubious tax advice at your former employer.
 
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