Provision for tax on an annual bonus lets you deduct PAYE for a bonus over the remaining tax periods in the tax year. You include a portion of the bonus in each payroll run.
This approach increases regular PAYE deductions and doesn't calculate tax on the bonus payout. The system balances tax during the final tax calculation.
When using provision for tax on an annual bonus, you'll need to ensure to include the correct provision amount in the tax calculation. You can define a calculation method to calculate provision automatically.
How to calculate the provision for tax on an annual bonus
Use this formula to calculate provision for tax on an annual bonus:
(Estimated Bonus – YTD Provision amount) ÷ Remaining periods in the tax year
The system excludes the bonus payout during the tax year when you use the Annual Bonus earning type. At year end or termination, the system includes the bonus in tax.
CAUTION:
Applying and processing the incorrect provision results in over or under taxation of the bonus. We recommend contacting your Business Partner to help you with the setup and application of this feature.