Income Tax (Earnings and Pensions) Act 2003 section 312A

Limited exemption for qualifying bonus payments

Section 312A provides a limited income tax exemption of up to £3,600 per tax year for qualifying bonus payments made by a company employer to an employee or former employee.

• Qualifying bonus payments totalling no more than £3,600 in a tax year are exempt from income tax, with each employer's payments assessed separately unless the employers belong to the same corporate group.
• Where multiple employers within the same group pay qualifying bonuses to the same individual, the £3,600 exemption applies to the combined total from all group employers, not to each employer individually.
• The exemption is applied to payments in chronological order; where multiple payments on the same day cause the total to exceed £3,600, a proportional formula splits the remaining exemption across those payments.
• The Treasury may increase or decrease the £3,600 limit by order, but any reduction requires prior approval by the House of Commons.