A bonus is taxed at exactly the same rates as your salary, because HMRC treats it as ordinary earnings. There is no separate bonus tax rate. What you keep depends on which band the bonus falls into: a basic rate taxpayer keeps £720 of every £1,000, a higher rate taxpayer keeps £580, and someone whose income sits between £100,000 and £125,140 keeps only £380.
The confusion comes from the payslip. In the month a bonus is paid, PAYE often takes noticeably more than the annual figure suggests, then returns the difference over the months that follow. The worked examples below show both views: what the bonus costs across the tax year, and what the payslip does in the month it arrives.
How much of a bonus do you actually keep?
The rate that matters is your marginal rate, meaning the rate charged on the next pound you earn. Income tax and National Insurance move in opposite directions at £50,270, so the combined rate is not what most people expect.
| Where the bonus falls | Income tax | National Insurance | Combined | You keep per £1,000 |
|---|---|---|---|---|
| Below £12,570 | 0% | 0% | 0% | £1,000 |
| £12,570 to £50,270 | 20% | 8% | 28% | £720 |
| £50,270 to £100,000 | 40% | 2% | 42% | £580 |
| £100,000 to £125,140 | 60% | 2% | 62% | £380 |
| Above £125,140 | 45% | 2% | 47% | £530 |
Rates are the 2026/27 figures for England, Wales and Northern Ireland (Income Tax rates and Personal Allowances, gov.uk and National Insurance rates and categories, gov.uk).
Two rows deserve a note. Above £50,270 National Insurance falls from 8 per cent to 2 per cent, which softens the jump to the 40 per cent tax rate. And between £100,000 and £125,140 the personal allowance is withdrawn by £1 for every £2 of income, which produces an effective 60 per cent income tax rate on that slice (Income over £100,000, gov.uk). A bonus that lands in that range is the most expensive money you will ever be paid.
A student loan adds to the total. Repayments have no upper earnings limit, so 9 per cent comes off the whole bonus on Plans 1, 2, 4 and 5, or 6 per cent on a postgraduate loan. A basic rate taxpayer on Plan 2 therefore keeps £630 of every £1,000 rather than £720.
A worked example: a £5,000 bonus on a £45,000 salary
Across the tax year the sum is straightforward. The bonus takes total pay from £45,000 to £50,000, which is still inside the basic rate band, so all of it is charged at 20 per cent tax and 8 per cent National Insurance.
| Across the year | Without bonus | With bonus | Difference |
|---|---|---|---|
| Gross pay | £45,000 | £50,000 | £5,000 |
| Income tax | £6,486 | £7,486 | £1,000 |
| National Insurance | £2,594 | £2,994 | £400 |
| Take-home pay | £35,920 | £39,520 | £3,600 |
The working on the tax column: without the bonus, taxable income is £45,000 minus the £12,570 personal allowance, which is £32,430, and 20 per cent of that is £6,486. With the bonus, taxable income is £37,430 and 20 per cent of that is £7,486. The £1,000 difference is simply 20 per cent of £5,000.
National Insurance follows the same pattern at 8 per cent, so the bonus adds £400. Take-home rises by £3,600, which is 72 per cent of the bonus.
Why the National Insurance is lower than the annual figure suggests
Income tax is worked out cumulatively across the year, but National Insurance is charged on each pay period on its own, against monthly thresholds of £1,048 and £4,189. A lump sum pushes a single month’s pay past the upper threshold, where the rate drops to 2 per cent.
Take the same £45,000 salary, paid £3,750 a month, with the £5,000 bonus in October.
- In an ordinary month: 8 per cent of the £2,702 between £1,048 and £3,750 gives £216.16
- In October, on £8,750: 8 per cent of the £3,141 between £1,048 and £4,189 gives £251.28, plus 2 per cent of the £4,561 above £4,189 gives £91.22, a total of £342.50
So the bonus added only £126.34 of National Insurance, which is 2.5 per cent of £5,000 rather than 8 per cent. Across the full year the eleven ordinary months plus October come to £2,720.26, compared with £2,994.40 if the same £50,000 had been paid in twelve equal instalments. Being paid a lump sum saved £274.14.
Counting that saving, the real gain from the £5,000 bonus is about £3,874 rather than £3,600.
Why does my payslip show 40 per cent tax on my bonus?
Because PAYE recalculates your whole year to date every month, and one large payment temporarily makes the running total look like a higher rate income.
October, month 7 of the tax year on the standard 1257L code, is set out below.
| October, month 7 | Figure |
|---|---|
| Pay so far this tax year | £31,250 |
| Tax-free pay released so far | £7,337.75 |
| Taxable pay so far | £23,912.25 |
| Basic rate band released so far | £21,991.67 |
| Tax due on the year so far | £5,166.56 |
| Tax already deducted in months 1 to 6 | £3,242.10 |
| October deduction | £1,924.46 |
An ordinary month’s tax on this salary is £540.35, so October takes £1,384.11 more. The bonus should only have cost £1,000 in tax at 20 per cent, which means £384.11 was overpaid. That is the £1,920.58 of year-to-date pay sitting above the released basic rate band, charged at 40 per cent instead of 20 per cent.
Nothing is broken. By March, another five twelfths of the personal allowance and the basic rate band have been released, the running total catches up, and the £384.11 comes back through lower deductions in the remaining payslips. No claim is needed. The month-by-month payslip checker shows the whole sequence, and there is a fuller explanation of the mechanism in the guide on why one month’s tax jumps.
What changes the figure?
The salary you were already on. This is the single biggest factor, because it decides which band the bonus lands in. A £5,000 bonus is worth £3,600 on a £45,000 salary and £2,900 on a £60,000 one.
A bonus that straddles a threshold. Only the part above the line is charged at the higher rate. On a £48,000 salary with a £5,000 bonus, £2,270 stays in the basic band and £2,730 crosses into the higher band, so the combined cost is a blend of 28 per cent and 42 per cent rather than a flat rate.
Whether the bonus is pensionable. If your scheme applies your normal contribution percentage to bonus payments, a further slice is taken before tax, which reduces the taxable amount as well as the cash.
Child Benefit. The High Income Child Benefit Charge begins once adjusted net income passes £60,000 and removes the benefit entirely by £80,000 (High Income Child Benefit Charge, gov.uk). A bonus that pushes you across £60,000 can cost far more than 42 per cent once the charge is counted. The marginal tax rate calculator shows the true rate on your own next pound.
Living in Scotland. Scottish income tax uses different bands and rates, so the income tax column changes while National Insurance stays the same (Income Tax in Scotland, gov.uk).
The month it is paid. This changes what the payslip shows, not what the bonus costs over the year.
Can you reduce the tax on a bonus?
The main route is to pay some or all of it into a pension before it reaches you. A bonus sacrifice avoids income tax and National Insurance on the sacrificed amount, so £5,000 goes into the pension for a take-home cost of about £3,600 at basic rate, or £2,900 at higher rate. Many employers also pass on part of their own National Insurance saving, which adds to the contribution.
The timing is the part people miss. A sacrifice has to be agreed before the bonus is paid, because once it has been paid it is your earnings and the tax is already due (Salary sacrifice for employers, gov.uk). Ask payroll well before the bonus month. The salary sacrifice guide sets out when the arrangement is worth using and the situations where it is not.
Payroll Giving is the other option: donations made through the scheme come out of pay before tax, so the full amount reaches the charity at a lower cost to you.
What do people get wrong about bonus tax?
Believing there is a bonus tax rate. There is not. HMRC applies the same rates it applies to salary, and the bonus is reported through PAYE like any other pay.
Assuming the whole bonus is taxed at 40 per cent because part of it is. Only the slice above £50,270 attracts the higher rate.
Claiming a refund that is already coming. On a normal cumulative tax code the overpayment corrects itself before the end of the tax year. A claim is only needed if you are on a W1, M1 or X code, which does not self-correct.
Forgetting the student loan. It adds 9 per cent or 6 per cent to the whole bonus with no upper limit, and it is a repayment rather than a tax, so it does not appear in tax comparison tables.
Reading the National Insurance line as a mistake. It rises in pounds but falls as a share of that month’s pay, because most of the bonus sits in the 2 per cent band.
Treating a non-cash bonus as tax-free. Vouchers, gift cards and prizes are taxable benefits. Only genuinely trivial gifts under the £50 limit fall outside the rules.
Work out your own figure
Open the bonus tax calculator to see what a specific bonus leaves after tax, National Insurance, pension and student loan, on your own salary. For the full year picture the take-home pay calculator covers every deduction, and if the payment is really overtime rather than a bonus, the hourly pay calculator converts it to a rate you can compare against your normal hours.
Common questions
Is a bonus taxed at 40 per cent? Only the part that falls above £50,270. On a basic rate salary the combined deduction is 28 per cent, so you keep £720 of every £1,000.
Will I get the extra tax back? Yes, automatically, provided you are on a cumulative tax code and your annual pay does not actually reach the higher rate. The correction spreads across the remaining months of the tax year.
Do I pay National Insurance on a bonus? Yes, but often at 2 per cent rather than 8 per cent, because National Insurance is charged per pay period and a lump sum pushes that month past the £4,189 upper threshold.
Does a bonus affect my student loan repayment? Yes. The repayment is 9 per cent of the bonus on Plans 1, 2, 4 and 5, or 6 per cent on a postgraduate loan, with no upper limit.
Can I put my whole bonus into my pension? Usually yes, subject to your annual allowance and your employer’s scheme rules, but it has to be arranged before the bonus is paid.
Is a signing bonus taxed differently? No. A signing bonus, a retention bonus and a performance bonus are all taxed as ordinary earnings through PAYE.
Where these figures come from
- Income Tax rates and Personal Allowances, gov.uk
- National Insurance rates and categories, gov.uk
- Income over £100,000, gov.uk
- Repaying your student loan: what you pay, gov.uk
- Salary sacrifice and the effects on PAYE, gov.uk
Information, not financial advice. Figures use the 2026/27 rates for England, Wales and Northern Ireland and are estimates to help you understand the rules. Check your own circumstances against gov.uk or speak to a qualified adviser before acting on them.