Key facts
- No special bonus tax rate: bonuses are taxed as employment income
- Basic rate band ends at £50,270; only income above that pays 40%
- £5,000 bonus on £32,000 salary: about £3,600 net (28% effective deduction)
- Pension salary sacrifice from a bonus saves income tax and NI
Why Bonuses Feel More Heavily Taxed
When a bonus arrives on your payslip, the deduction often looks disproportionately large. There are two reasons:
The bonus pushes you into a higher band. If your salary alone sits just below £50,270 but your bonus takes total earnings above it, the portion above £50,270 attracts 40% rather than 20%. Only the slice in the higher band is taxed at 40%, but the visual impact on the payslip month is dramatic.
Emergency or non-cumulative tax code. Some payroll systems apply an emergency basis (W1/M1) to bonus months, calculating as if you earn that amount every month rather than spreading your allowance across the year. This leads to temporary overtaxation that is corrected in later payslips.
Expert Tip
If your bonus payslip shows a tax deduction that feels far too high compared to your normal months, check whether your employer applied a cumulative or non-cumulative basis that month. Payroll teams sometimes switch to W1/M1 for large one-off payments. The overpaid tax is reconciled in the same tax year, but it temporarily reduces your cash flow. Ask your payroll department which basis they used.How Bonus Tax Is Calculated
HMRC treats bonuses as employment income. They are added to your salary for the pay period in which they are paid, and PAYE tax and NI are deducted accordingly.
The key figure is your annual equivalent gross income including the bonus. Your tax code applies the same personal allowance and band thresholds as your regular salary. No special bonus tax rate exists.
Worked Example 1: Salary £32,000, Bonus £3,000
- Total annual income: £35,000
- Income tax on £35,000 (after £12,570 allowance): £22,430 x 20% = £4,486
- Income tax on salary alone at £32,000: £19,430 x 20% = £3,886
- Additional tax on £3,000 bonus: £600 (20%)
- NI on £3,000 bonus (8%): £240
- Net bonus received: £3,000 minus £600 minus £240 = approximately £2,160
Worked Example 2: Salary £45,000, Bonus £10,000
The bonus pushes total income to £55,000. The first £5,270 above £50,270 falls in the higher rate band.
- Tax on the first £4,730 of bonus (still in basic rate band): £946
- Tax on the next £5,270 (in higher rate band at 40%): £2,108
- NI on full £10,000 bonus: approximately £562 (mixture of 8% up to £50,270 and 2% above)
- Total deductions on bonus: approximately £3,616
- Net bonus received: approximately £6,384
Worked Example 3: Salary £48,000, Bonus £5,000
Total income: £53,000. £2,730 stays in the basic rate band, £2,270 enters the higher rate.
- Effective tax on the bonus: roughly £1,460 (mixed rate)
- NI on £5,000 bonus: approximately £230
- Net bonus received: approximately £3,310
Bonus Tax Calculator
Enter your salary and bonus amount to see your exact take-home in under 30 seconds. Includes income tax and NI breakdown.
Bonus Take-Home at a Glance: 2026/27
| Base Salary | Bonus | Approx Tax + NI on Bonus | Net Bonus Received |
|---|---|---|---|
| £25,000 | £2,000 | £560 | £1,440 |
| £32,000 | £5,000 | £1,400 | £3,600 |
| £45,000 | £5,000 | £1,460 | £3,540 |
| £48,000 | £10,000 | £3,616 | £6,384 |
| £60,000 | £10,000 | £4,200 | £5,800 |
| £90,000 | £15,000 | £7,350 | £7,650 |
Note: these are approximate figures based on standard tax code 1257L, NI category A, no pension deductions, and England/Wales rates.
National Insurance on Your Bonus
NI is charged at 8% on earnings between £12,570 and £50,270 and at 2% above £50,270. For a bonus received in a month where your cumulative NI contributions for the year are already above the upper earnings limit (£50,270 divided across 12 months), you only pay 2%. For most workers receiving a mid-year bonus, the 8% rate applies to most or all of the bonus.
How to Reduce Tax on Your Bonus
Three legitimate strategies exist:
1. Pension Contribution From the Bonus
If your employer offers salary sacrifice arrangements for bonuses, you can redirect all or part of the bonus into your pension. A £5,000 pension contribution from a bonus saves 40% income tax for a higher rate payer (£2,000) plus 8% NI (£400). The money goes into your pension at zero deductions rather than arriving in your bank account at 48% effective cost.
For a basic rate payer, a £5,000 pension contribution from a bonus costs you only £3,500 net (the pension scheme claims 20% basic rate relief from HMRC directly), and you also save 8% NI (£400), making the effective cost just £3,100 for a £5,000 pension contribution.
See the Salary Sacrifice Calculator to model the pension savings from your specific bonus amount.
2. Gift Aid Donation
If you make a qualifying Gift Aid donation, HMRC extends your basic rate band by the grossed-up donation amount. A higher rate taxpayer donating £3,000 through Gift Aid can claim an additional £750 (the difference between higher rate 40% and basic rate 20% relief) through self-assessment. This does not reduce the immediate PAYE deduction on your bonus but reduces your year-end tax bill.
3. Pension to Avoid the £100,000 Trap
If your salary plus bonus total approaches or exceeds £100,000, pension contributions become extremely valuable. Each pound contributed reduces adjusted net income, restoring the personal allowance that is otherwise withdrawn above £100,000 at an effective 60% rate. See the 60 percent tax trap guide for a full explanation of this trap.
When Overpaid Tax Is Corrected
If your employer uses an M1 or W1 basis for your bonus month (non-cumulative), you may see a very large deduction. HMRC corrects this automatically in later months of the same tax year as your cumulative earnings align. If it is not corrected by year end, HMRC issues a P800 tax calculation after the tax year closes, and any overpayment is refunded.
You do not need to do anything. However, if you have left the employer, contact HMRC with your P45 to claim the refund proactively.
Related Calculators
Frequently Asked Questions
Only the portion of the bonus that falls in the higher rate band (above £50,270 of total annual earnings) is taxed at 40%. If your salary plus bonus stays within the basic rate band, the entire bonus is taxed at 20%.
Yes. Employee NI (Class 1) is charged at 8% on the bonus amount up to the upper earnings limit (£50,270 annual), and 2% above that.
If your payslip shows unexpectedly high tax, your employer may have used a non-cumulative basis (W1/M1) for the bonus month. This overtaxes temporarily and is corrected in later payslips. Speak to your payroll team if the correction has not appeared within two months.
Yes, subject to your annual pension allowance (£60,000 for 2026/27 or your annual earnings if lower). Pension contributions from bonuses via salary sacrifice eliminate income tax and NI on the contributed amount.
On a £32,000 salary, a £5,000 bonus attracts about £600 income tax (20%) and £240 NI (8%), leaving approximately £3,600 net from the bonus.
A £10,000 bonus on a £48,000 salary pushes total income to £58,000, with part taxed at 40%. Total deductions on the bonus are approximately £3,616, giving a net bonus of about £6,384 (roughly 36% effective rate).
Yes. Redirecting a bonus into a pension via salary sacrifice removes it from taxable pay, saving both income tax and employee NI. A higher rate payer saving £5,000 into a pension avoids £2,000 tax and £400 NI.
It depends on your employer's scheme rules. Many workplace pensions calculate contributions on basic salary only, but some include bonuses in pensionable pay. Check your contract and scheme booklet, because a bonus included in pensionable pay increases both your and your employer's contributions.
Get UK finance tips delivered weekly
No spam. Unsubscribe any time.
You Might Also Like
How to Understand Your UK Payslip (2026/27 Complete Guide)
UK payslip guide 2026/27: every line explained: gross pay, tax code, income tax, NI, pension, student loan and net pay using HMRC rates.
The 60% Tax Trap UK 2026/27: Personal Allowance Taper Explained
Earn between £100,000 and £125,140 and you lose your Personal Allowance, creating a 60 percent effective tax rate. See how the trap works and how to reduce it.
UK Income Tax Bands and Rates Explained (2026/27)
Complete guide to UK income tax bands for 2026/27. Personal allowance, basic rate, higher rate, additional rate, the 60% trap, Scottish rates, and how to reduce your bill.
James Hartley is a Chartered Management Accountant (CIMA) with more than eight years of experience in UK tax, payroll and compliance. He holds a BSc in Finance and Economics from the University of Manchester and spent his early career at a Big 4 accounting firm. He founded WhatsUK to build free UK financial calculators and guides verified against official HMRC sources. He authors every calculator and article on WhatsUK.
Sources & Official References
- HMRC: Rates and thresholds for employers 2025 to 2026- Official PAYE rates and thresholds
- HMRC: PAYE guidance- How PAYE applies to bonuses and one-off payments
Last verified:
Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.