How Are Bonuses Taxed? UK Income Tax & NI on Bonus Payments
Bonuses feel smaller once HMRC has taken its share. Here is exactly how bonus taxation works in 2025-26, with examples at key salary levels.
Bonuses Are Just Income
From HMRC's perspective, a bonus is simply more income. There is no special "bonus tax rate" — your bonus is added to your regular pay for the pay period and taxed at your marginal rate through PAYE. Your employer calculates the combined tax and NI on your total earnings for that pay period, deducts it from the bonus, and pays you the net amount.
This means the tax on your bonus depends entirely on where you sit in the income tax bands once the bonus is added to your salary.
How PAYE Works with Bonuses
PAYE is calculated on a cumulative year-to-date basis. When your employer pays your bonus, they look at:
- Total income received so far this tax year (including the bonus)
- Total tax that should have been paid on that income
- Tax already deducted in previous pay periods
- The difference is deducted from this month's bonus payment
In practice, if you receive a large bonus in December, your employer will deduct more tax in December to "catch up" with what you owe based on your now-higher annual income. If the bonus turns out to push you into a higher band, you may find a larger-than-expected tax deduction.
Example 1: Basic Rate Taxpayer — £35,000 Salary + £5,000 Bonus
Your regular salary is £35,000. You receive a £5,000 bonus in March. Your total income for the year becomes £40,000 — all within the basic rate band (under £50,270).
- Bonus tax at the basic rate: £5,000 × 20% = £1,000 income tax
- NI on bonus: £5,000 × 8% = £400
- Total deducted: £1,400
- Bonus take-home: £3,600 (72% of £5,000)
The effective marginal rate here is 28% (20% IT + 8% NI). You keep 72 pence in every pound of bonus.
Example 2: Straddling the Higher Rate Threshold — £48,000 Salary + £5,000 Bonus
Your salary is £48,000. You receive a £5,000 bonus. Total income: £53,000. The £50,270 higher rate threshold is crossed mid-bonus.
- Remaining basic rate capacity: £50,270 − £48,000 = £2,270
- First £2,270 of bonus — basic rate zone: 20% IT + 8% NI = 28%
- Tax on first £2,270: £454 IT + £182 NI = £636
- Remaining £2,730 of bonus — higher rate zone: 40% IT + 2% NI = 42%
- Tax on remaining £2,730: £1,092 IT + £55 NI = £1,147
- Total bonus tax: £636 + £1,147 = £1,783
- Bonus take-home: £5,000 − £1,783 = £3,217 (64.3% of £5,000)
The blended effective rate on the bonus is 35.7%. A same-sized bonus for a £45,000 earner would result in a 28% rate. The threshold straddling costs an extra £383 in tax.
Example 3: Higher Rate Taxpayer — £60,000 Salary + £10,000 Bonus
Salary is already above £50,270. The entire bonus falls in the higher rate band.
- Income tax on £10,000 bonus: £10,000 × 40% = £4,000
- NI on £10,000 bonus: £10,000 × 2% = £200
- Total deducted: £4,200
- Bonus take-home: £5,800 (58% of £10,000)
Summary: How Much of Your Bonus Do You Keep?
| Salary | Bonus | Band | Tax + NI on Bonus | Bonus Take-Home | % Kept |
|---|---|---|---|---|---|
| £25,000 | £5,000 | All basic rate | £1,400 | £3,600 | 72% |
| £35,000 | £5,000 | All basic rate | £1,400 | £3,600 | 72% |
| £48,000 | £5,000 | Straddles threshold | £1,783 | £3,217 | 64% |
| £60,000 | £10,000 | All higher rate | £4,200 | £5,800 | 58% |
| £105,000 | £10,000 | 60% trap zone | £6,200 | £3,800 | 38% |
How to Reduce Tax on Your Bonus
Pension Salary Sacrifice (Most Effective)
Many employers allow you to sacrifice some or all of a bonus directly into your pension rather than receiving it as cash. Because the sacrifice happens before PAYE is calculated, the full gross amount enters your pension. A £5,000 bonus sacrificed to pension costs you zero income tax or NI — versus keeping just £3,217–£3,600 as take-home pay. The pension pot grows £5,000; your take-home falls by £5,000 minus whatever tax you would have paid.
For a basic-rate taxpayer: sacrificing £5,000 bonus to pension vs taking cash → you lose £3,600 take-home but gain £5,000 pension. Net pension advantage: £1,400 (the tax you saved). Over a career, this compounds significantly.
Timing Considerations
If you are near the end of a tax year and expect to be a basic-rate taxpayer this year but a higher-rate taxpayer next year (due to a pay rise), it may be worth requesting your bonus be paid in the current tax year rather than the next. Conversely, if this year has been an unusually high income year, deferring a bonus to the next tax year can save 12–14% marginal rate (the difference between 42% and 28%).
Frequently Asked Questions
How much tax will I pay on my bonus?
Basic-rate taxpayers pay 28% (20% IT + 8% NI). Higher-rate taxpayers pay 42% (40% IT + 2% NI). If your bonus pushes you across the £50,270 threshold, you pay 28% on the portion below and 42% on the portion above.
Does a bonus push me into a higher tax band?
Yes, if the combined total of your salary plus bonus exceeds £50,270. Only the portion above the threshold is taxed at the higher rate — your underlying salary rate does not change.
Can I reduce the tax on my bonus?
Yes — pension sacrifice is the most effective option. Direct the bonus (or part of it) into your pension before PAYE is calculated, and the full gross amount enters your pension pot tax-free.