Answers · UK 2025/26
Why is my one-off bonus taxed so heavily?
Bonuses are taxed via PAYE assuming the rate continues all year — so a one-off bonus may push your projected annual income into the higher-rate band that single month. Excess tax is refunded automatically over the following months as PAYE reconciles cumulatively.
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UK bonus PAYE tax mechanism 2025/26. PAYE is "Pay As You Earn" — your employer calculates tax assuming each pay period's earnings continue at the same level for the whole year. A one-off £5,000 bonus on top of £4,000 monthly = £9,000 in that month. PAYE annualises that as £108,000/year — which pushes into higher rate. So you may pay tax at 40% on most of the bonus that month, instead of 20%. Why this happens: PAYE uses a cumulative tax-free allowance. After 6 months, you have £6,285 (half of £12,570) of cumulative allowance. The system catches up automatically. Reconciliation: in following months, your monthly tax drops below the usual amount as PAYE re-spreads your annual allowance — most overpayment is recovered by year-end (5 April). Final P60 reconciliation: any net under/overpayment is sorted via tax code adjustment for next tax year or a P800 / Simple Assessment letter. Real impact: if you DO genuinely earn over £50,270 across the year, the bonus IS taxed at 40% (just spread over future months instead of bunched up). The "heavy taxation" feeling is largely a cash-flow timing illusion unless you cross the £100k Personal Allowance taper trap (effective 60% rate). Solution to bunching: bonus sacrifice into pension — full marginal rate relief, NI savings too.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.