How Is My Bonus Taxed? UK Bonus Tax Explained (2026/27)

A common complaint: "I got a £5,000 bonus but only took home £3,000 — why is my bonus taxed at 40%?" The short answer is that bonuses are not taxed at a special rate. They are added to your regular income and taxed at your marginal rate. But the way PAYE works in the month you receive the bonus can make it feel like significantly more is being taken than you expected.

This guide explains exactly how bonus taxation works in the 26-27 tax year, why your payslip looks the way it does, and what you can do about it. Use the interactive calculator below to see your specific situation — all figures are computed using the same engine as HMRC's own PAYE tables.^[1]

Bonuses are taxed as normal income

HMRC does not distinguish between your salary and a bonus — both count as employment income and are subject to income tax and National Insurance at the same rates.^[1] Your bonus is simply added on top of your regular pay in the period it is paid, and PAYE calculates the tax due on the combined total. There is no separate "bonus tax" or special rate that applies to one-off payments.

The income tax bands for 26-27 are: a Personal Allowance of £12,579 (taxed at 0%), a basic rate of 20% on income from £12,579 to £50,270, a higher rate of 40% from £50,270 to the additional rate threshold, and an additional rate of 45% above that. National Insurance adds 8% on earnings between £12,570 and £50,270 per year, then 2% above £50,270.^[2]

Your bonus simply pushes your total income further along these bands. The tax on the bonus itself is the difference between what you'd pay on salary alone and what you pay on salary plus bonus — which is your marginal rate applied to the bonus amount.

Why the deduction looks so high

PAYE is cumulative. By the time you receive a bonus (often in March or December), you have likely already used up your Personal Allowance (£12,579) and much of the basic rate band (which runs to £50,270) through your regular monthly salary. This means the bonus is taxed at your highest marginal rate — potentially 40% income tax plus 2% NI if you earn above £50,270.

National Insurance compounds the effect. In the month you receive a large bonus, your earnings for that pay period spike well above normal levels. The 8% NI rate applies to earnings between the Primary Threshold and the Upper Earnings Limit, not just the 2% rate that applies above it. For someone already above the UEL on salary alone, the bonus attracts only 2% NI — but for basic rate taxpayers whose bonus month pushes them through the UEL, part of the bonus is taxed at 8% NI.

The combined result: a bonus for a higher rate taxpayer is effectively taxed at 42% (40% income tax + 2% NI). For basic rate taxpayers, the effective rate is 28% (20% tax + 8% NI). These are not penalties — they are exactly the same rates that apply to the equivalent amount of regular salary at that income level.

Calculate your bonus take-home

Use the sliders below to see exactly how much of your bonus you take home after tax and NI. The calculation accounts for your base salary (which determines your marginal rate) and the bonus amount. Results update live using the same engine as our main calculator.

The effective tax rate shown above represents the combined income tax and NI deducted from your bonus. If your base salary is below £50,270, you'll see a rate around 28%. Once your salary exceeds £50,270, the bonus is taxed at 42%. Between £100,000 and £12,579 × 2 + £100,000, the effective rate can reach 62% due to the Personal Allowance taper.

Example: £40,000 salary + £5,000 bonus

On a £40,000 salary, you are a basic rate (20%) taxpayer. Your £5,000 bonus pushes total income to £45,000 — still within the basic rate band (which runs to £50,270 for 26-27). The entire bonus is taxed at 20% income tax + 8% NI because your total income remains below the higher rate threshold.

• Income tax on bonus: £5,000 × 20% = £1,000
• NI on bonus: £5,000 × 8% = £400
• Take-home from bonus: £3,600

That's an effective rate of 28% on the bonus. The NI figure may differ slightly from 8% × £5,000 because NI is calculated per pay period (monthly), not annually. The rounding difference is usually less than £10. See full breakdown for this scenario →

Example: £55,000 salary + £10,000 bonus

On a £55,000 salary, you are already in the higher rate band (your income exceeds £50,270). Your £10,000 bonus is taxed at 40% income tax. For NI, because your annual salary already exceeds the Upper Earnings Limit (£50,270), the bonus attracts only 2% NI — not the full 8% rate.

• Income tax on bonus: £10,000 × 40% = £4,000
• NI on bonus: £10,000 × 2% = £200
• Take-home from bonus: £5,800

The effective rate on this bonus is 42%. Note that if your salary were slightly below the higher rate threshold, part of the bonus would be taxed at 20% and part at 40% — the calculator above handles this split correctly. See full breakdown for this scenario →

Will I get some back at year end?

If PAYE has over-deducted (which can happen if the bonus is paid early in the tax year and projected too much income forward), the excess is automatically refunded through your payslip in subsequent months. PAYE is designed to self-correct cumulatively — each month it recalculates your year-to-date position and adjusts the deduction accordingly. You do not need to file a Self-Assessment return for this correction to happen.

However, if your employer uses a "Month 1" or "non-cumulative" tax code (sometimes shown as "X" on your payslip), the system will not self-correct during the year. In this case, any overpayment will be refunded after the tax year ends, either through an adjusted tax code the following year or via a P800 tax calculation from HMRC. Check your tax code on your payslip — if it ends in "M1" or "W1", speak to your payroll team about switching to a cumulative code.

The most common scenario where PAYE over-deducts on a bonus is when you receive a large one-off payment in Month 1 (April). The system may project your annual income as 12× that month's pay, pushing you into a higher band temporarily. This self-corrects by Month 3 at the latest under a cumulative code.

Reducing tax on a bonus

The most effective strategy is to redirect your bonus (or part of it) into your workplace pension via salary sacrifice — before it reaches your payslip. This eliminates both income tax and National Insurance on the sacrificed amount, because the bonus never becomes your taxable income.^[3] You need to arrange this with your employer before the bonus is paid; you cannot retrospectively sacrifice income you have already received.

For higher rate taxpayers, sacrificing a £10,000 bonus saves £4,200 in combined tax and NI — meaning £10,000 goes into your pension instead of £5,800 into your bank account. That's a 72% instant boost to your retirement savings before any investment growth. See our salary sacrifice pension guide for more on this strategy.

If salary sacrifice is not available through your employer, you can make a personal pension contribution and claim higher-rate tax relief through Self-Assessment. You'll still pay NI on the bonus (since personal contributions don't reduce NI liability), but you'll reclaim the 40% income tax difference between basic rate relief (given automatically) and your marginal rate. This is less efficient than salary sacrifice but still worthwhile for higher-rate taxpayers.

Use the bonus tax calculator

For a complete month-by-month breakdown of how your bonus interacts with your salary, use our dedicated bonus tax calculator. It handles the month-specific NI calculation accurately — including the split between 8% and 2% rates — which a simple annual calculator cannot do for one-off payments. Enter your base salary and bonus amount to see exactly what arrives in your bank account.

You can also use the pre-configured link for a £45K salary with £5K bonus as a starting point and adjust from there.

If you're comparing the value of a bonus against a permanent salary increase, our pay rise negotiation guide shows how marginal rates affect ongoing raises versus one-off payments.

Sources

1. HMRC — Income Tax rates and Personal Allowances. Rates for 26-27 tax year: basic rate 20%, higher rate 40%, additional rate 45%. Personal Allowance £12,579. Accessed July 2026.
2. HMRC — National Insurance rates and categories. Employee Class 1 NI: 8% between Primary Threshold and Upper Earnings Limit, 2% above UEL. Accessed July 2026.
3. HMRC — Tax on your private pension: salary sacrifice arrangements. Confirms that salary sacrifice pension contributions are exempt from both income tax and employee NI. Accessed July 2026.