Tax on a Bonus: Why It Looks Like 40%+ and How to Keep More

There is no special tax on a bonus. It is taxed as ordinary employment income, so the deduction you see depends entirely on where the bonus sits in your bands once it is stacked on top of your salary — 28% if it stays inside the basic rate, 42% if it falls in the higher-rate band, and as much as 62% if it pushes you past £100,000. The reason the payslip often looks worse than expected is PAYE and National Insurance timing, not a different rate.

• Key points
• A bonus is added to your salary and taxed at your marginal rate: income tax plus 8% or 2% National Insurance.
• Income tax through PAYE is cumulative and usually self-corrects; NI is worked out per pay period and does not.
• Between £100,000 and £125,140 the Personal Allowance tapers away, giving a combined marginal rate of 62% (about 69.5% in Scotland).
• Bonus sacrifice into a pension escapes income tax and NI entirely — but it must be agreed before you become entitled to the bonus.
• Between £60,000 and £80,000 a bonus can also trigger the High Income Child Benefit Charge.

Is a bonus taxed at a higher rate?

No. HMRC treats a contractual or discretionary cash bonus exactly like salary: it goes through PAYE, it is subject to Class 1 National Insurance, and it counts towards your student loan deductions. What changes is the slice of income it occupies. Because your salary has already used up your Personal Allowance and often the whole basic-rate band, the bonus is frequently taxed entirely at 40%.

Here is what each extra £100 of bonus actually costs in England, Wales and Northern Ireland in 2026/27:

Scottish taxpayers pay Scottish rates on non-savings income such as a bonus, but the same UK-wide National Insurance. The 42% higher rate starts once income passes about £43,662, the 45% advanced rate from about £75,000, and the 48% top rate above £125,140.

The 50% band in Scotland is an oddity worth knowing about: between roughly £43,663 and £50,270 you pay the 42% Scottish higher rate and 8% National Insurance, because the NI upper earnings limit is still set at the UK threshold of £50,270.

Why the payslip looks worse than the sums say

PAYE annualises a one-off payment

PAYE assumes the pay you receive this month is typical. Pay a £10,000 bonus in one month and, for that month, the software sees a much bigger annual pay rate, so more of the payment is taxed at 40% than the year-end position justifies. Because most codes operate cumulatively, the overpayment usually unwinds over the following months — your later payslips show less tax than usual. If the bonus lands in March, or you leave the job shortly afterwards, there is no time left to unwind it and you either get a refund after HMRC reconciles the year or you claim it back.

An emergency or month-1 code makes it worse

If your code has an X, W1 or M1 suffix, PAYE ignores everything earned earlier in the year and taxes the month in isolation. That is when bonus deductions look most alarming. A wrong tax code is the most common cause of over- or under-paying tax, so it is worth checking the code on the bonus payslip against the code HMRC holds.

National Insurance is per pay period — which can work in your favour

Unlike income tax, Class 1 NI is calculated on each pay period separately and is not squared up at the end of the year (company directors are the exception — they usually get an annual earnings period). Monthly, that means 8% on earnings between £1,047.50 and £4,189.17, then 2% above.

The practical effect: if your salary is comfortably below £50,270, a lump-sum bonus pushes a large chunk of that month's pay above the monthly upper earnings limit, where NI is only 2%. Take a £40,000 salary (£3,333.33 a month) and a £10,000 bonus paid in one go:

• NI in the bonus month: 8% × (£4,189.17 − £1,047.50) = £251.33, plus 2% × (£13,333.33 − £4,189.17) = £182.88. Total £434.21.
• A normal month: 8% × (£3,333.33 − £1,047.50) = £182.87.
• So the bonus costs £251.34 in NI — about 2.5% of it.

If the same £10,000 had been spread evenly across twelve months, every pound would have stayed under the monthly limit and attracted 8% NI: £800. Lumping it saves roughly £549. Splitting a bonus across two tax months is therefore usually an NI cost, not a saving, for people under the upper earnings limit.

Student loan and pension deductions

Student loan repayments (9% on the main income-contingent plans, 6% for postgraduate loans) are also worked out per pay period, so a bonus month can trigger a deduction even if your annual income is close to the threshold. Auto-enrolment pension contributions may or may not apply to bonuses, depending on whether your scheme uses qualifying earnings or full pay — check the scheme rules before assuming the bonus is pensionable.

Bonus sacrifice into a pension: the decision the calculators skip

A bonus tax calculator tells you the net figure. The more valuable question is whether you want the cash at all. With bonus sacrifice, you agree with your employer in advance to give up some or all of the bonus in exchange for an employer pension contribution. The money never becomes your earnings, so it escapes income tax and employee National Insurance, and the employer saves their 15% secondary NI too — some employers pass all or part of that saving into the pension.

Three rules matter:

• The agreement must be a genuine variation of your contract, signed before you become entitled to the bonus. You cannot sacrifice money you are already owed.
• Employer contributions count towards the £60,000 annual allowance alongside your own. Unused allowance from the previous three tax years can often be carried forward if you were a scheme member in those years.
• If your adjusted income exceeds £260,000 the annual allowance tapers down to a minimum of £10,000, and if you have flexibly accessed a pension the money purchase annual allowance of £10,000 applies instead.

The trade-offs are real: the money is locked away until at least age 55 (rising to 57), it can reduce the income a mortgage lender will use, and sacrifice cannot take your pay below the National Minimum Wage. Some benefits linked to salary, such as death-in-service cover, may be based on post-sacrifice pay.

If sacrifice is not offered, the fallback is a personal pension contribution out of the net bonus. That gets 20% relief added at source and extends your basic-rate band, so higher and additional-rate taxpayers claim the remaining relief through Self Assessment or by contacting HMRC — see GOV.UK on pension tax relief. It does not recover any National Insurance, which is why sacrifice is the stronger route where it is available. Gift Aid donations work similarly for income tax and for reducing adjusted net income.

The £100,000 trap

Above £100,000 the Personal Allowance is cut by £1 for every £2 of income, so it is gone entirely at £125,140. Each extra £1 of bonus is taxed at 40% and also drags 50p of allowance into the 40% band — an effective 60%, or 62% with NI. In Scotland the same mechanic sits on top of the 45% advanced rate: 45% plus 22.5% of lost allowance is 67.5%, or 69.5% with NI.

This is the classic case for sacrificing just enough of the bonus to land back on £100,000. Our £100k trap checker shows where your income sits against the taper, and the reduce higher-rate tax decision tool compares the options.

There is a second, quieter trap between £60,000 and £80,000. The High Income Child Benefit Charge claws back 1% of Child Benefit for every £200 of adjusted net income above £60,000, so it is fully repaid at £80,000. With Child Benefit at £27.05 a week for the eldest child and £17.90 for each other child, two children are worth £2,337.40 a year — and clawing that back across a £20,000 band adds about 11.7 percentage points to your marginal rate.

Worked examples

1. A bonus that straddles the higher-rate threshold

Salary £48,000, bonus £5,000, England. Total income £53,000.

• First £2,270 of the bonus (up to £50,270): 20% tax = £454, 8% NI = £181.60 → £635.60.
• Remaining £2,730: 40% tax = £1,092, 2% NI = £54.60 → £1,146.60.
• Total deductions £1,782.20, net bonus £3,217.80 — an effective 35.6%.

2. A bonus that crosses £100,000

Salary £95,000, bonus £10,000, England.

• First £5,000 (to £100,000): 42% combined = £2,100.
• Next £5,000 (£100,000–£105,000): £2,000 tax on the bonus, plus 40% on £2,500 of lost Personal Allowance = £1,000, plus 2% NI = £100. Total £3,100.
• Deductions £5,200; net bonus £4,800 — you keep 48%.

Sacrifice the whole £10,000 and the pension receives £10,000 (up to £11,500 if the employer adds their 15% NI saving) instead of £4,800 of cash. Sacrifice only £5,000 and you land exactly on £100,000: £5,000 into the pension plus £2,900 net cash from the other half, taxed at 42%.

3. The same bonus in Scotland

Salary £50,000, bonus £5,000.

• First £270 (to £50,270): 42% tax + 8% NI = 50% → £135.
• Remaining £4,730: 42% + 2% = 44% → £2,081.20.
• Net bonus £2,783.80 from £5,000 — 55.7% kept.

4. A bonus that triggers the Child Benefit charge

Salary £57,000, bonus £5,000, two children, England. Income rises to £62,000.

• Tax and NI on the bonus: 42% × £5,000 = £2,100.
• HICBC: £2,000 over £60,000 = 10% of £2,337.40 = £233.74.
• Net gain £2,666.26 — an effective 46.7% on the bonus.

A £2,000 pension contribution would bring adjusted net income back to £60,000 and remove the charge altogether.

What to do next

Run your actual numbers through the bonus tax calculator to see the net figure and the marginal rate your bonus attracts, then use the reduce higher-rate tax tool to compare taking the cash against sacrificing part of it. If your total pay is anywhere near six figures, check the £100k allowance taper first, and use the pension tax relief calculator to see what a contribution is worth at your marginal rate.