Bonus Tax Explained: Why Your Payslip Looks Worse Than the Bill

There's no special tax rate on a bonus

HMRC doesn't have a bonus rate. A bonus is ordinary earnings, taxed through PAYE at the same rates as the rest of your pay. What makes it feel punished is where it sits: your salary has already used your Personal Allowance and your cheaper bands, so the bonus lands on top and every pound of it is taxed at your highest rate.

Here's what a £5,000 bonus costs at six salaries in England, Wales and Northern Ireland, using 2026/27 rates.

A £5,000 bonus paid as a single lump, 2026/27 rates for England, Wales and Northern Ireland. No pension contribution, no student loan. Income tax and National Insurance only.

Two things in that table surprise people. The first is that you keep a bigger share of the bonus on £45,000 than on £25,000. National Insurance falls from 8% to 2% above the Upper Earnings Limit, which is £50,270 a year or £4,189 a month, and the limit is applied to each month on its own. A £5,000 lump pushes most of the bonus above the monthly limit, so a higher earner pays 2% on the bulk of it.

The second is the jump between £45,000 and £55,000. At £45,000 the whole bonus still fits inside the basic-rate band. At £55,000 your salary alone is already in the 40% band, so the bonus is taxed at 40% from the first pound and the deduction rate almost doubles.

The £105,000 row is the expensive one. Between £100,000 and £125,140 your Personal Allowance is withdrawn at £1 for every £2 you earn, which turns a 40% band into a 62% marginal rate once National Insurance is added. The 60% tax trap guide covers that band on its own.

Why the payslip disagrees with the bill

The three deductions on a bonus run on different clocks, and that single fact explains almost every confused payslip. Income tax keeps a running total across the year. National Insurance and student loan look at one pay period and forget it ever happened.

Income tax is cumulative, so it over-collects early

Each month, payroll compares everything you've earned so far this tax year against the slice of your allowance and bands that has built up by that point. In April only one twelfth has accrued: £1,047.50 of Personal Allowance and £3,141.67 of basic-rate band. A £5,000 bonus dropped on top of that small slice spills straight past it.

On a £35,000 salary with a £5,000 bonus paid in April, £3,727 of that April pay is taxed at 40%, even though you're a basic-rate taxpayer for the year and the bonus really costs £1,000 in income tax. The payslip shows £2,119 of income tax against the £1,374 you'd expect from a normal month plus the bonus. The extra £746 is timing.

£35,000 salary, £5,000 bonus, 2026/27 rates for England, Wales and Northern Ireland, standard cumulative tax code. The annual income tax on the bonus is £1,000 whichever month it arrives.

Nobody claims that money back. By the time enough of the year has passed for your bands to catch up, your deductions drop and the cumulative position is right again. Take the same bonus in March and there's no over-collection at all, because eleven months of band have already accrued.

One thing that does stop the correction is a non-cumulative tax code, the sort ending in W1, M1 or X. Those treat every pay period as if it were the first, so the overpayment sits there until HMRC issues a proper code. Our guide to tax codes covers how to spot one.

National Insurance is per pay period, and it's final

NI keeps no running total. Each pay period is assessed on its own against monthly thresholds, and there is no year-end reconciliation for employees. Company directors are the exception, because they're assessed on annual earnings instead. For everyone else, the NI deducted in your bonus month is the final answer and none of it comes back.

That cuts in your favour more often than not. Because the 2% rate above the monthly Upper Earnings Limit applies to that month alone, concentrating money into one payslip is cheaper than spreading it.

• £45,000 salary, £10,000 bonus. £226 of NI as a single lump. Spread across twelve months the same £10,000 would cost £516.
• £30,000 salary, £10,000 bonus. £301 as a lump against £800 spread out, a saving of £499.

Most bonus calculators get this backwards, because they apply an annual rate to the bonus and never model the pay period. The effect only reverses if your normal monthly pay sits below the £1,047.50 primary threshold, where spreading the money could keep you under it entirely.

Student loan is per period too, and it can take money you don't owe

Student loan repayments work on the same per-period basis as NI, which produces an odd result. Take a £26,000 salary on Plan 2 with a £3,000 bonus. Annual income is £29,000, below the £29,385 Plan 2 threshold, so you owe nothing for the year. But the bonus month's pay of £5,167 is well over the monthly threshold of £2,449, so £245 comes off that payslip.

You can get it back, and it isn't automatic. After the tax year ends and the Student Loans Company has confirmed your income with HMRC, you can ask them for a below-threshold refund through their online service. Most people never do.

The three things that really move the number

A bonus that crosses £100,000

This is where a bonus stops being expensive and starts being brutal. On a £95,000 salary, a £20,000 bonus leaves you with £8,600. You've handed over £11,400 to keep £8,600 of your own bonus, and the marginal rate on the top of it is 62%.

There's a sting after that. Your tax code doesn't know the taper has started, so payroll keeps giving you the full £12,570 allowance all year and under-collects by £3,000. HMRC picks it up afterwards, either by changing next year's code or by asking you for the money. A bonus you spent in February can turn into a bill in the autumn.

The 100k salary trap calculator shows the taper on its own if that band is where your bonus lands.

Living in Scotland

National Insurance and student loan repayments are set UK-wide, so they're identical either side of the border. Income tax isn't, and on a bonus the gap can be much wider than people expect.

What you keep from a £5,000 bonus, 2026/27 rates, no pension contribution or student loan.

The £45,000 row is the one worth staring at. A Scottish taxpayer hands over £1,100 more on the same £5,000 bonus, because the Scottish higher rate of 42% starts at £43,662 while England, Wales and Northern Ireland stay at 20% until £50,270. The entire bonus is taxed at 42% in Scotland and 20% just south of the border. At £105,000 a Scottish bonus faces a 69.5% marginal rate. The full Scotland and England comparison sets out the difference across the whole salary range.

Putting the bonus into your pension

Bonus sacrifice is the only lever most people have. You agree with your employer to give up the bonus before it's paid, and it goes to your pension instead, ahead of income tax, National Insurance and student loan. Because you never receive it, every £1 of cash you give up buys more than £1 of pension.

Sacrificing a £5,000 bonus in full. Cash given up is what the bonus would have paid after tax and National Insurance had you taken it in cash. A Scottish taxpayer gives up less cash at the same salary, which is why the Scottish exchange rate is higher. 2026/27 rates, no student loan.

The exchange rate tracks your marginal rate, which is why it climbs so sharply. A basic-rate earner turns £3,824 of cash into £5,000 of pension. Someone on £105,000 in Scotland turns £1,525 into the same £5,000, because the cash version would have been taxed at 69.5%. Your employer saves 15% of employer National Insurance on the sacrificed amount as well, £750 on a £5,000 bonus, and some schemes pass that straight into your pension too.

The cost is access. Pension money is locked until age 57 from 2028, so this only makes sense for money you weren't going to spend. There's also a deadline worth knowing about: from 6 April 2029, only the first £2,000 a year of salary-sacrificed pension contributions will be free of National Insurance. The legislation has already received Royal Assent, so the next three bonus rounds are the last with unlimited relief. The salary sacrifice guide explains how the mechanism works on regular pay.

If a bonus is coming, the two numbers worth having before it arrives are what you'll actually keep and what the payslip will say, because they're rarely the same. The bonus tax calculator gives you both, along with the pension exchange rate for your own salary.

This calculator is for general guidance only. It does not replace advice from a qualified financial adviser on your personal circumstances.

Last updated: 2 August 2026