The extent to which some employers have shifted 2012/13 bonus schemes to help their high earners avoid tax has become clear in the latest earnings figures from the ONS. On the seasonally-adjusted headline figures, bonus pay increased dramatically from March to April 2013, a reversal of the usual trend, which is for the bonus season to finish at the end of March.
The clearest reason for this change to April bonuses is the changes to income tax rates, whereby income tax on earnings above £150,000 a year reduced from 50 to 45 per cent from April 2013. The unusual pattern of bonus earnings data suggests significant numbers of employers have adjusted their bonus schemes to pay bonuses for these high earners after the cut-off point, meaning that the highest earners can avoid a small proportion of the income tax that would have been due.
Across the whole economy, average weekly bonuses jumped from £24 a week in March 2013 to £43 a week in April, looking at the headline seasonally-adjusted figure. The £43 a week bonus figure is 49 per cent higher than the equivalent in April 2012, a significant year-on-year increase. By contrast, the figure for March 2013 was 8 per cent down on the 2012 figure. As is often the case, the bonus effect was strongest in the finance and business services sector, where average bonuses of £143 per employee in April 2013 were 107 per cent higher than in March, and 64 per cent higher than in April 2012.
The large increase in April bonus payments has driven a small recovery in total average weekly earnings. As a result, total pay including bonuses for the three months to April 2013 grew by 1.3 per cent on the same period a year earlier, up from 0.6 per cent annual growth for the three months to March. Excluding bonuses, regular pay rose by just 0.9 per cent over the year to the April period.
While it would appear that a fairly large amount of bonus pay has been moved from March to April, the only employees who benefit from the reduced tax rate are additional rate taxpayers, on earnings in excess of £150,000 a year. We would expect these individuals to be fairly few in number, compared to the total amount of individuals in receipt of bonuses. A cynic might point out that, although fairly few in number, this group might potentially include some people with the power to influence the timing of their organisations’ bonus payments.