How Bonuses Are Taxed in the UK (2026/27)

How PAYE taxes a bonus

Income tax: with a normal cumulative tax code, PAYE compares your total pay so far this tax year against your allowance and bands so far. The bonus is taxed at the rate it would fall into across the year to date, so in most cases the tax is right.

National Insurance: worked out for that pay period alone. Pay up to £4,189 in the month is charged at 8% (above £1,048), and anything above at 2%. A large bonus month can therefore attract less NI than the same money spread over the year.

Student loan: also per period, so 9% of the bonus is usually taken if your normal pay is already over the threshold.

Example 1: basic-rate taxpayer

Salary £40,000 (£3,333.33 a month) plus a £5,000 bonus paid in December. Total income of £45,000 stays within the basic-rate band, so the bonus is taxed at 20%: £1,000.

NI in a normal month is £182.83. In the bonus month pay is £8,333.33: 8% on £3,141 (£251.28) plus 2% on £4,144.33 (£82.89) = £334.17. The extra NI on the bonus is £151.34. You keep £3,848.66 of the £5,000. With a Plan 2 student loan, another £450 goes.

Example 2: bonus that crosses into higher rate

Salary £48,000 plus a £10,000 bonus. The first £2,270 of the bonus uses up the rest of the basic-rate band at 20% (£454); the remaining £7,730 is taxed at 40% (£3,092). Income tax on the bonus is £3,546, around 35.5%.

Example 3, in the 60% trap: salary £95,000 plus £10,000 bonus. £5,000 is taxed at 40% (£2,000) and £5,000 at an effective 60% (£3,000) as the personal allowance is withdrawn. With 2% NI (£200), you keep only £4,800.

Why your bonus looks overtaxed

• Emergency or week 1/month 1 tax code: each month is taxed in isolation, so a big month can push income into the 40% band even if your annual total does not. Any excess is refunded after the year ends (or later in the year if your code is corrected).
• Bonus paid early in the tax year: under a cumulative code, April or May bonuses can use up the year-to-date basic-rate band. Later months then have less tax deducted, so it evens out by March.
• Bonus paid after you leave: it is taxed using code 0T on a non-cumulative basis, often at 20% or 40% with no allowance. Overpayments are reconciled after the tax year.

Sacrificing a bonus into your pension

Many employers let you exchange some or all of a bonus for an employer pension contribution. You must agree before the bonus is paid or becomes contractually due. The sacrificed amount escapes income tax, employee NI and student loan, and the employer saves 15% NI, which some pass on.

In example 3, sacrificing the £10,000 bonus puts the full £10,000 (or £11,500 if the employer adds its NI saving) into your pension instead of £4,800 in cash, and keeps adjusted net income at £95,000. From 6 April 2029, pension salary or bonus sacrifice above £2,000 a year will attract NI, but the income tax relief remains.

Bonuses in Scotland

Scottish taxpayers pay Scottish income tax on bonuses, and the higher rate of 42% starts at £43,663. Because NI stays at 8% until £50,270, regular pay between £43,663 and £50,270 loses 50% to tax and NI. Example: a £45,000 salary plus a £5,000 bonus paid in one month in Scotland costs £2,100 in income tax (all at 42%) and about £126 in extra NI, because most of the bonus month sits above the £4,189 monthly upper earnings limit. You keep about £2,774. The same bonus in England would leave about £3,874.

Bonuses that cross a threshold

A bonus can cost more than your marginal rate suggests when it pushes adjusted net income over £60,000 (Child Benefit), £100,000 (personal allowance and Tax-Free Childcare) or your student loan threshold.

Example: a £48,000 salary plus an £8,000 bonus. Without sacrifice, the bonus adds £4,957.80 to take-home pay. If that brings adjusted net income to £56,000, Child Benefit is unaffected, but a bonus big enough to take income over £60,000 would start the charge. Sacrificing the whole bonus into a pension leaves take-home at £38,079.60, the same as without the bonus, and puts the full £8,000 (plus any employer NI rebate) into the pension.

Commission, overtime and back pay follow the same rules

Commission, overtime, back pay from a pay award and a 13th-month payment are all taxed like a bonus: added to pay in the month paid, with cumulative income tax and per-period NI and student loan.

Back pay is taxed when it is paid, not when it was earned. A pay award backdated to April and paid in October uses October's cumulative position. Under a normal cumulative tax code, that still averages out over the year.

Before your bonus month: a quick checklist

• Check your tax code is cumulative (no W1, M1 or X) so the bonus uses your year-to-date allowance and bands.
• Ask whether bonus sacrifice is available, and the deadline for opting in before the bonus becomes due.
• Work out whether the bonus takes adjusted net income over £60,000 or £100,000 for the tax year.
• Expect a bigger student loan deduction that month. If your total income for the year stays under the threshold, you can reclaim it.