Receiving a bonus is always welcome, but the tax deducted from it can come as a surprise. Many people assume bonuses are taxed at a special, higher rate. In reality, HMRC treats a bonus as ordinary earnings — it is added to your salary and taxed through the cumulative PAYE system. The reason your bonus often seems heavily taxed is that it pushes your total income into a higher tax band.
How PAYE Works on Bonuses
Under cumulative PAYE, your employer calculates income tax on your total pay to date each time you are paid. When a bonus is added to a regular pay period, the system calculates tax on the combined salary-plus-bonus figure for that period, then subtracts the tax already collected in earlier periods. The result is that all of the incremental tax falls on the bonus payment, making the deduction appear disproportionately large.
Example: You earn £45,000 per year and receive a £10,000 bonus. Your total income becomes £55,000. Without the bonus you sit entirely within the 20% basic rate band (taxable income up to £50,270 in 2025/26). The bonus pushes £4,730 of income into the 40% higher rate band, so part of the bonus is taxed at 20% and part at 40%.
Income Tax Rates on Bonuses (2025/26)
The tax on a bonus depends on which band it falls into after your salary:
| Band | Taxable Income | Rate |
|---|---|---|
| Basic Rate | Up to £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Scotland uses different rates: Starter (19%), Basic (20%), Intermediate (21%), Higher (42%), Advanced (45%), and Top (48%). National Insurance rates are the same UK-wide.
National Insurance on Bonuses
Your bonus is also subject to employee Class 1 National Insurance:
- 8% on earnings between £12,570 and £50,270 (the Primary Threshold to the Upper Earnings Limit)
- 2% on earnings above £50,270
There is no cap on NI at the 2% rate, so very large bonuses still attract NI on every pound.
The Personal Allowance Trap
If your salary plus bonus takes your total income above £100,000, you start losing your £12,570 Personal Allowance at the rate of £1 for every £2 over £100,000. This creates an effective marginal rate of 60% (40% income tax plus the 20% effective rate from losing the allowance) in the £100,000 to £125,140 taper zone. A relatively modest bonus can trigger this trap.
Strategies to Reduce Bonus Tax
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Salary sacrifice into a pension — If your employer allows it, sacrificing some or all of your bonus into a workplace pension means neither income tax nor NI is payable on the sacrificed amount. The money goes into your pension pot tax-free (within the Annual Allowance).
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Spread the bonus — Some employers allow you to defer part of a bonus into the next tax year. If you are near a band boundary, spreading across two years can keep you in a lower bracket.
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Charitable donations via Gift Aid — Donations extend your basic rate band. A large Gift Aid donation in the same year as a bonus can reduce the amount taxed at higher rates.
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Check your tax code — If HMRC issues an emergency tax code on a bonus, you may overpay tax. You can reclaim the excess through a P800 or Self Assessment.
Key Takeaway
Bonuses are not taxed at a special rate — they are simply added to your total income and taxed through PAYE at your marginal rate. The apparent high deduction reflects the cumulative nature of the system. Use our bonus tax calculator to see exactly how much income tax and NI you will pay on your next bonus.