A bonus is treated as ordinary employment income for tax purposes. It is added to your salary and taxed at your marginal rate, the rate that applies at the top of your income. This means that if your salary puts you in the Basic Rate band (20%), your bonus is taxed at 20%. If your salary is above £50,270, your bonus is taxed at 40% from the first pound.
How much bonus tax do you pay? Key scenarios
| Base salary | Bonus | Tax on bonus (Income Tax) | NI on bonus (8%) | Bonus take-home |
|---|---|---|---|---|
| £25,000 | £2,000 | £400 (20%) | £160 | £1,440 |
| £30,000 | £5,000 | £1,000 (20%) | £400 | £3,600 |
| £40,000 | £5,000 | £1,000 (20%) | £400 | £3,600 |
| £48,000 | £5,000 | £894+£731 (band split) | £146+£254 | £2,975 |
| £55,000 | £5,000 | £2,000 (40%) | £100 | £2,900 |
| £80,000 | £10,000 | £4,000 (40%) | £200 | £5,800 |
| £100,000 | £10,000 | £4,000 (40%) | £200 | £5,800 |
The £100,000 bonus trap
If your salary is near £100,000, a bonus can trigger one of the most punishing effective tax rates in the UK. Earnings between £100,000 and £125,140 cause your Personal Allowance to be withdrawn at £1 for every £2 of income. This creates an effective 60% tax rate on income in this band:
- 40% income tax on the earnings themselves
- Plus 20% effective extra tax from losing the Personal Allowance
- Plus 2% NI
A £10,000 bonus on a £100,000 salary costs approximately £6,200 in tax, leaving just £3,800. The solution: pay the bonus directly into a pension to avoid the trap entirely.
How to reduce bonus tax with pension contributions
The most tax-efficient way to handle a bonus is to direct it into your pension via salary sacrifice. This reduces your taxable income, preserving your Personal Allowance and potentially keeping you in a lower tax band.
Example: £48,000 base salary + £5,000 bonus = £53,000 total. Without pension: the £2,730 above the Higher Rate threshold is taxed at 40%, costing extra tax. Sacrifice the full £5,000 bonus to pension: your taxable income stays at £48,000, below the threshold, and you save approximately £731 in income tax.
Is my bonus taxed differently from my salary?
In terms of the rate applied, no. A bonus is employment income taxed at the same bands as salary. However, your employer may deduct tax on a cumulative basis (spreading the bonus over the year in PAYE terms) or on a Week 1/Month 1 basis, which can temporarily over-deduct. Any over-deduction is corrected through the normal PAYE reconciliation process.
Frequently asked questions
How much tax do I pay on a bonus?
Your bonus is taxed at your marginal Income Tax rate, 20% if your total income is below £50,270; 40% if above. You also pay 8% National Insurance on the bonus (2% if it pushes you above £50,270).
Can I avoid paying tax on my bonus?
You cannot avoid tax, but you can reduce it. Directing a bonus into your pension via salary sacrifice reduces your taxable income, potentially saving 20-40% of the bonus amount in income tax.
Why is my bonus taxed so heavily?
Bonuses are taxed at your highest marginal rate. If you are a Higher Rate taxpayer, 40% Income Tax plus 2% NI means you keep only 58p in every £1. And if you are between £100,000 and £125,140, the Personal Allowance withdrawal pushes the effective rate to over 62%.