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Commitment Bonus- Interesting Numbers

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Dicky_morris

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Whilst talking in work today about the new commitment bonus it was noted that the 15k at 8 years might not be the best deal when you look at the current economic climate. So we decided to do some rough number crunching and were suprised to say the least. These numbers are quick pencil/back of fag pack stuff so if we are wrong in any way please highlight to save any confusion.

Right, we started off by comparing how much a person was to lose if they took the 15k at their 8 year compared to if they took it at the 6 year and 8 year. We looked at the following link for tax bands http://www.hmrc.gov.uk/rates/it.htm and noticed that as of this year the higher level tax band starts at 35k. So.. If you are an SAC who has input their AIP's at 6year point you are going to be on 28,989 and thats not going to change due to the pay freeze from April this year... Therefore...

6 Year Point

28989 + 7500 = 36439 - 35000 = 1439
7500 - 1439 = 6061

40% of 1439 = 575.60
20% of 6061 = 1212.20

8 Year Point If you pick up + 1 year as Cpl..Level 3 Cpl

30356 + 5000 = 35356 - 35000 = 356
5000 - 356 = 4644

40% of 356 = 142.40
20% of 4644 = 928.80

So from you 12,500 total you would pay 2859 which would give you a bonus of £9641

But...

If you wait until the 8 year point.(If you pick up + 1 year as Cpl..Level 3 Cpl)

30356 + 15000 = 45356 - 35000 = 10,356
15000 - 10356 = 4644


40% of 10356 = 4142.40
20% of 4644 = 928.80

would mean a total tax of 5071.20

15000 - 5071.20 = 9928.80

So if you wait until 8 years you are looking at making 9928.80 - 9641 = 287.80 compared to the 6/8 year bonus

Now, for anyone whos a bit savy with money, you could invest at the 6 year point your £5712.20 bonus and quite easily make over 287.80 in interest.

What are peoples thoughts on this??
 
the Zero rate wouldn't come into it as your basic pay would absorb this, the figures are on the bonus, and as such the zero rate wouldn't be involved
 
Just having a quick gander on money saving expert to see what savings accounts are being offered at the moment..

So at your 6 year point you take the 5712.20 and invest into a savings account at 3.85% (fixed for 2 years), which would give you 5932.12 after the first year and 6160.56 at the end of the second year.

6160.56 - 5712.20 = 448.30 then if we look at the difference between the 6/8 scheme and straight up 8yr scheme you which is 287.80. so if you invested instead of waiting you would be up £160.50 (448.30 - 287.80)
 
Off topic but I've always thought about winning the thunderball top prize of £500,000, I don't ask for much lol, but when you look at interest rates like that 3% it would still mean I'd have to work lol. Pretty mean interest rates
 
clarklyttle said:
I believe your initial tax figures are wrong as you have a tax allowance of £7,475 before you are taxed then you add the £35000 on top of this before you reach the 40% tax rate figures from http://www.hmrc.gov.uk/rates/it.htm. This would change your sums by quite an amount.
Click to expand...

No you are wrong I'm afraid. You have a tax allowance of £7475 so you can earn up to that tax free. Then from £7476 to £34999 is taxed at basic rate then from £35000 is taxed at 40% so sometimes it pays to turn down a pay rise if it takes you enter the higher tax bracket.
 
Dicky_morris said:
Whilst talking in work today about the new commitment bonus it was noted that the 15k at 8 years might not be the best deal when you look at the current economic climate. So we decided to do some rough number crunching and were suprised to say the least. These numbers are quick pencil/back of fag pack stuff so if we are wrong in any way please highlight to save any confusion.

Right, we started off by comparing how much a person was to lose if they took the 15k at their 8 year compared to if they took it at the 6 year and 8 year. We looked at the following link for tax bands http://www.hmrc.gov.uk/rates/it.htm and noticed that as of this year the higher level tax band starts at 35k. So.. If you are an SAC who has input their AIP's at 6year point you are going to be on 28,989 and thats not going to change due to the pay freeze from April this year... Therefore...

6 Year Point

28989 + 7500 = 36439 - 35000 = 1439
7500 - 1439 = 6061

40% of 1439 = 575.60
20% of 6061 = 1212.20

8 Year Point If you pick up + 1 year as Cpl..Level 3 Cpl

30356 + 5000 = 35356 - 35000 = 356
5000 - 356 = 4644

40% of 356 = 142.40
20% of 4644 = 928.80

So from you 12,500 total you would pay 2859 which would give you a bonus of £9641

But...

If you wait until the 8 year point.(If you pick up + 1 year as Cpl..Level 3 Cpl)

30356 + 15000 = 45356 - 35000 = 10,356
15000 - 10356 = 4644


40% of 10356 = 4142.40
20% of 4644 = 928.80

would mean a total tax of 5071.20

15000 - 5071.20 = 9928.80

So if you wait until 8 years you are looking at making 9928.80 - 9641 = 287.80 compared to the 6/8 year bonus

Now, for anyone whos a bit savy with money, you could invest at the 6 year point your £5712.20 bonus and quite easily make over 287.80 in interest.

What are peoples thoughts on this??
Click to expand...

You've not taken the tax allowance off. A rough look at it there's only £1500 taxed at 40% and the rest at basic say approx 20% should be about £3300.
 
Are you sure?

Are you sure?

justintime129 said:
No you are wrong I'm afraid. You have a tax allowance of £7475 so you can earn up to that tax free. Then from £7476 to £34999 is taxed at basic rate then from £35000 is taxed at 40% so sometimes it pays to turn down a pay rise if it takes you enter the higher tax bracket.
Click to expand...

Are you really sure? Do you want to go away and check?
I understood you have your allowance and then the 20% (the first £6500 tax free) then 20 % on next £35k ish.
Maybe worth asking a highly paid member to confirm before telling someone they are wrong?
 
New Fag Pack Required

New Fag Pack Required

You pay no tax on your Tax Free Allowance

2011/12 you then pay 20% on the next 35k

You then pay 40% on your salary above this, if you have a normal Tax free allowance then this is around £42,500.

Once you earn over £100k your personal tax free allowance is reduced by £1 for every £2 above.

Once you earn over £150k your additional salary is taxed at 50%.

Now rework your figures.
 
busby1971 said:
You pay no tax on your Tax Free Allowance

2011/12 you then pay 20% on the next 35k

You then pay 40% on your salary above this, if you have a normal Tax free allowance then this is around £42,500.

Once you earn over £100k your personal tax free allowance is reduced by £1 for every £2 above.

Once you earn over £150k your additional salary is taxed at 50%.

Now rework your figures.
Click to expand...

Were do you get the £42000 from. Surely as soon as you start earning £35,000 you start paying 40%
 
Mug? said:
Are you really sure? Do you want to go away and check?
I understood you have your allowance and then the 20% (the first £6500 tax free) then 20 % on next £35k ish.
Maybe worth asking a highly paid member to confirm before telling someone they are wrong?
Click to expand...

Are you sure yourself maybe you want to rework your figures
 
justintime129 said:
Were do you get the �42000 from. Surely as soon as you start earning �35,000 you start paying 40%
Click to expand...

No this year the high rate kicks in at about 43500 and next year around 42500, this is total income so if you have two income sources you have to add them together.

Additionally some individuals could have a lower, or even negative tax free allowance, that could effect when the he higher rates kick in, although I wouldn't expect many serving Cpls and SACs to be in this situation.

Sent from my phone so apologies for the spelling
 
busby1971 said:
No this year the high rate kicks in at about 43500 and next year around 42500, this is total income so if you have two income sources you have to add them together.

Additionally some individuals could have a lower, or even negative tax free allowance, that could effect when the he higher rates kick in, although I wouldn't expect many serving Cpls and SACs to be in this situation.

Sent from my phone so apologies for the spelling
Click to expand...

If you read the link to the website it gives the complete opposite to what you say. I'll google it when I get home.
 
I was under the impression that the reason its down to 35k this coming year is so higher rate payers don't benefit from the extra 1k personal allowance.
 
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