Guide · 4 minute read

Why is my bonus taxed so much?

Because a bonus sits on top of your salary, every pound of it is taxed at your highest rate, not your average one. Add the way payroll squeezes it into a single month and the deductions can look brutal, even when the maths is technically right.

Your highest rate, not your average rate

Most of the year, your effective tax rate is dragged down by the tax-free personal allowance and the basic-rate band. A bonus gets none of that cushioning. It lands on top of everything else you earn, so the whole thing is taxed at your marginal rate.

On a £40,000 salary, a £5,000 bonus all falls in the basic-rate band: £1,000 of income tax, around £150 of National Insurance, and about £3,850 lands in your account. Fine. On a £60,000 salary, the same maths turns sour: a £10,000 bonus is all higher-rate income, so £4,000 of tax plus £200 of NI leaves £5,800, or 58p of every bonus pound. Add a Plan 2 student loan, which takes 9% of anything above £2,448.75 in the month, and another £900 disappears, leaving £4,900. Run your own numbers through the bonus tax calculator before you mentally spend the headline figure.

Why the bonus month payslip looks even worse

PAYE is cumulative: each month, payroll gives you one twelfth of your allowance and one twelfth of each tax band. When a big bonus arrives early in the tax year, that month's pay can blow past the bands available so far, so some of it is taxed at a higher rate than your annual income justifies.

The good news is that cumulative PAYE self-corrects. As the remaining months release more band, the over-deduction unwinds automatically and you pay slightly less tax in later payslips. You do not need to call HMRC or fill in a form; you just need to judge the bonus by the annual numbers, not by one ugly payslip.

The 60% trap between £100,000 and £125,140

Here is where bonuses genuinely hurt. For every £2 of income above £100,000, you lose £1 of personal allowance, until it is gone entirely at £125,140. Losing allowance means previously tax-free income becomes taxed at 40%, which stacks an extra 20% on top of the 40% higher rate: an effective 60% income tax rate in that zone, 62% once you add 2% NI.

Concretely: on a £100,000 salary, a £10,000 bonus costs £6,000 in extra income tax (the 40% on the bonus plus £2,000 from the £5,000 of allowance it destroys) and £200 in NI. You keep £3,800 of £10,000. If your salary plus bonus lands anywhere between £100,000 and £125,140, this trap applies to that slice, and it is the strongest argument for the sacrifice option below.

National Insurance is the small mercy

Unlike income tax, NI is assessed payslip by payslip, not over the year. In 2026/27 you pay 8% on monthly pay between £1,047.50 and £4,189, and only 2% above that. A large bonus pushes the bonus month way past £4,189, so almost all of it is charged at 2%.

That is why NI on a £10,000 bonus for someone on £60,000 is just £200, and why a bonus actually attracts less NI than the same money spread across twelve payslips would. It does not rescue the overall picture, but it is the one deduction working in your favour.

Bonus sacrifice: the one real lever

If your employer offers it, you can sacrifice some or all of the bonus into your pension before it is paid. No income tax, no NI, no student loan deduction, and for the £100,000 to £125,140 crowd, no destroyed personal allowance. A higher-rate earner sacrificing £10,000 puts the full £10,000 to work instead of keeping £5,800; in the 60% trap the comparison is £10,000 versus £3,800. Some employers even add part of their own NI saving on top.

The catch is the obvious one: the money is locked away until pension access age. Sacrifice what future-you needs, keep what present-you needs, and check the trade-off in the salary sacrifice calculator first.

Common questions

Is there a special bonus tax rate in the UK?

No. There is no separate bonus tax. A bonus is ordinary employment income, taxed through PAYE at whatever marginal rate it falls into once stacked on top of your salary. It only feels special because none of it is sheltered by your allowance or lower bands.

Will I get any of the bonus tax back?

If cumulative PAYE over-deducted in the bonus month, yes, automatically: later payslips in the same tax year take slightly less tax until it balances out. If the tax year ends before it fully corrects, HMRC reconciles it and refunds any overpayment, usually via a P800 letter.

Does my student loan come out of my bonus too?

Yes. Student loan deductions are calculated per payslip on pay above the monthly threshold (£2,448.75 for Plan 2 in 2026/27). If your normal salary already clears the threshold, the deduction is effectively 9% of the entire bonus, or 6% on the postgraduate plan.

Should I sacrifice my whole bonus into my pension?

Only if you genuinely will not need the cash before pension access age. The tax case is strongest in the £100,000 to £125,140 zone, where each sacrificed pound would otherwise lose 62p. Watch the annual pension allowance if the bonus is large, and remember sacrifice needs to be agreed before the bonus is paid.

Does a bonus change my tax code?

Usually not. A one-off bonus is handled inside the normal cumulative calculation under your existing code. The exception is crossing £100,000: HMRC may adjust your code for the following year to collect the tapered allowance, and you may also be asked to file a tax return.

Guidance and education, not regulated financial advice.