How Bonuses Are Taxed in the UK in 2026
Bonuses are taxed as employment income at your marginal rate — not a flat rate, not an 'emergency code'. Here's how PAYE handles them, how salary sacrifice changes the maths, and when timing your bonus makes sense.
Quick answer
Bonuses are taxed exactly like salary — as employment income at your marginal rate. In 2026/27, that means 20% basic rate (income up to £50,270), 40% higher rate (£50,270–£125,140), or 45% additional rate (above £125,140). There is no separate bonus tax.
The apparent "overtax" that many people notice in the month their bonus arrives is a PAYE artefact — it corrects itself automatically. The real question is not whether you can avoid the tax, but whether you can use pension sacrifice or timing to put the money to better use.
Take-Home Pay Calculator
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Open Take-Home Pay calculatorThe PAYE cumulative system — why bonuses look overtaxed
PAYE is a running total system. Each pay period, your payroll software:
- Adds up all earnings so far this tax year (including the current month).
- Calculates what the total tax should be on that year-to-date figure.
- Subtracts tax already deducted in prior months.
- Deducts the difference this month.
In the month a bonus arrives, your year-to-date income spikes. PAYE might calculate that you owe 40% on the portion above £50,270 — even if your salary alone never reaches that level. But because it's cumulative, the following months (with lower month-to-date income) recalibrate and effectively "refund" the excess within the same tax year.
The emergency code myth
An "emergency tax code" is a real thing (code 1257L W1/M1) but it is applied by HMRC when your employer doesn't have your tax code on record — not routinely to bonuses. If you are on a standard cumulative code (1257L), your bonus will be correctly taxed over the full year. If you notice code M1 or W1 on your payslip in the bonus month, contact HMRC via Personal Tax Account to get it corrected.
2026/27 tax bands — where your bonus lands
| Income band | Rate |
|---|---|
| Up to £12,570 (Personal Allowance) | 0% |
| £12,571 – £50,270 | 20% (basic) |
| £50,271 – £125,140 | 40% (higher) |
| Above £125,140 | 45% (additional) |
Note: if your adjusted net income is between £100,000 and £125,140, you lose £1 of Personal Allowance for every £2 over £100,000, creating an effective 60% tax rate in that band. A bonus that pushes you into this zone is especially costly.
National Insurance on bonuses
Employee NI in 2026/27:
- 8% on earnings between £12,570 and £50,270 per year.
- 2% on earnings above £50,270.
- 0% from State Pension age (currently 66).
If your salary is already above £50,270 (the upper earnings limit), your bonus attracts NI at only 2%. Below that threshold, the portion of the bonus that takes you from your salary up to £50,270 attracts 8%, and everything above attracts 2%.
Example — Raj, salary £46,000, receives £8,000 bonus:
| Portion of bonus | Applies to | NI rate | NI cost |
|---|---|---|---|
| £4,270 (takes Raj from £46k to £50,270) | 8% | 8% | £342 |
| £3,730 (above £50,270) | 2% | 2% | £75 |
| Total NI | £417 |
Income tax on the bonus: £4,270 × 20% + £3,730 × 40% = £854 + £1,492 = £2,346.
Total tax + NI on the £8,000 bonus: £2,763. Take-home from bonus: £5,237.
Salary sacrifice: the most powerful lever
If your employer offers bonus sacrifice (also called bonus exchange), you can redirect part or all of your bonus into your pension before PAYE is applied. The bonus never shows as employment income for tax purposes.
Worked example: £5,000 bonus, 40% taxpayer, salary above £50,270
| Cash bonus | Full pension sacrifice | |
|---|---|---|
| Gross bonus | £5,000 | £5,000 |
| Income tax (40%) | −£2,000 | £0 |
| Employee NI (2%) | −£100 | £0 |
| Take-home cash | £2,900 | £0 |
| Pension pot added | £0 | £5,000 |
The pension sacrifice version adds the full £5,000 to your pension — £2,100 more than the tax-and-NI eroded cash version.
Additionally, your employer saves 13.8% employer NI on the £5,000 = £690. Many employers reinvest this saving into your pension as an additional contribution (common in company bonus schemes). If yours does, your pension pot grows by £5,690.
Salary Sacrifice Calculator
Calculate how much tax and National Insurance you save by making salary sacrifice contributions to a pension, cycle to work scheme or EV car scheme.
Open Salary Sacrifice calculatorBasic-rate taxpayer example: £5,000 bonus, salary £38,000
| Cash bonus | Full pension sacrifice | |
|---|---|---|
| Gross bonus | £5,000 | £5,000 |
| Income tax (20%) | −£1,000 | £0 |
| Employee NI (8%) | −£400 | £0 |
| Take-home cash | £3,600 | £0 |
| Pension pot added | £0 | £5,000 |
Sacrifice saves £1,400 vs cash here — less dramatic than at 40%, but still material. Whether you prefer the pension pot depends on your cashflow needs and proximity to retirement.
Timing your bonus: defer to next April?
If your bonus pushes you over a tax threshold, asking your employer to defer it to 6 April 2027 (the start of the next tax year) can be highly effective.
When deferral is worth considering:
- The bonus takes your income above £50,270 — the higher-rate threshold.
- The bonus takes you above £100,000 — triggering the Personal Allowance taper and 60% effective rate.
- You expect a lower-earning year ahead (career break, reduced hours, sabbatical).
- You want to maximise pension carry-forward from the new tax year.
What to watch:
- Deferral requires employer agreement and must be agreed before you become legally entitled to the bonus. If the bonus is contractual and already "accrued", deferral may not be possible for tax purposes (a binding obligation has arisen).
- Deferring shifts the problem, not eliminates it — make sure next year's income is actually lower before committing.
The pension annual allowance trap
Before sacrificing your entire bonus into pension, check that you won't breach the Annual Allowance of £60,000. The AA includes:
- Your own pension contributions.
- Your employer's pension contributions.
- Any defined-benefit pension accrual.
If you are a high earner (income + employer pension above £260,000 adjusted), the Tapered Annual Allowance may reduce your AA down to a minimum of £10,000. Check with your pension provider or a financial adviser before making large lump-sum contributions.
If you've been in a pension scheme for the past three years and haven't used your full AA, you can use carry-forward to contribute above £60,000 this year.
Pension Calculator
Estimate your pension pot at retirement and projected annual income.
Open Pension calculatorWhat if you receive a bonus after State Pension age?
Once you reach State Pension age (currently 66), you no longer pay employee NI. A £5,000 bonus at that stage is taxed only at your income tax rate:
- If you're a basic-rate taxpayer: take-home ≈ £4,000.
- If you're a higher-rate taxpayer: take-home ≈ £3,000.
This makes post-SPA bonuses significantly more efficient than pre-SPA ones.
Summary: decision tree
Receive bonus →
|
├─ Pushes income above £100,000?
| → Sacrifice as much as needed to stay below £100,000 (avoid 60% trap)
|
├─ Pushes income above £50,270?
| → Consider sacrifice (save 40% IT + 2% NI) or defer to April 6
|
├─ Below all thresholds?
| → Sacrifice still saves 20% IT + 8% NI = 28% boost to pension
|
└─ Need the cash now?
→ Take it; accept the tax; no harm if you have immediate cashflow needs
Sources
Frequently asked questions
How are bonuses taxed in the UK?
Bonuses are treated as employment income and taxed under PAYE at your marginal rate — 20%, 40% or 45% depending on your total income that year. There is no special flat tax rate for bonuses.
Why did my bonus get taxed at 40% when I'm a basic-rate taxpayer?
PAYE looks at your pay in a single month and grosses it up to an annual figure. If your regular salary plus bonus pushes your monthly income above roughly £4,189 (the monthly higher-rate threshold), PAYE may deduct 40% on the excess. In most cases this is corrected over subsequent months, and any overpayment is refunded in your final tax year settlement.
What is the 'emergency tax code' myth with bonuses?
PAYE is a cumulative system — it recalculates across the whole year each payday and credits what you've already paid. A one-month 'overtax' on a bonus typically self-corrects within the same tax year. You don't need to do anything unless your tax code has actually been changed.
Can I sacrifice my bonus into my pension to avoid tax?
Yes. If your employer offers bonus sacrifice (also called bonus exchange), you can redirect some or all of your bonus directly into your pension before PAYE applies. You save income tax at your marginal rate and employee National Insurance (8% up to £50,270, 2% above). Your employer also saves 13.8% employer NI, which some employers share with you.
How much do I keep from a £5,000 bonus as a 40% taxpayer?
Without any planning: £5,000 gross, less 40% income tax (£2,000) and 2% NI above the £50,270 threshold (£100) = approximately £2,900 take-home. With full pension sacrifice: £0 tax, £0 NI, full £5,000 added to your pension pot.
What NI rate applies to my bonus?
Employee NI is 8% on earnings between the Primary Threshold (£12,570/yr) and £50,270/yr, and 2% above £50,270. If your base salary is already above £50,270 your entire bonus attracts 2% NI. If your salary is below £50,270, the portion of the bonus that takes you over attracts 8%, the excess 2%.
Does it help to defer my bonus to the next tax year?
It can help if the bonus pushes you over a threshold — particularly £50,270 (higher rate), £100,000 (Personal Allowance taper) or £60,000 (pension annual allowance). Deferring to 6 April can mean the same bonus falls in a year where your total income is lower. This requires agreement with your employer.
Are there NI savings for my employer if I take a pension sacrifice instead of cash?
Yes. Employer NI is 13.8% on earnings above the secondary threshold (£9,100/yr in 2026/27). By routing a bonus through salary sacrifice into pension, the employer avoids 13.8% employer NI on that amount. Many employers split this saving with the employee by adding it to the pension contribution.
What happens to a bonus if I'm near the £100,000 income trap?
Income above £100,000 triggers the Personal Allowance taper — you lose £1 of PA for every £2 of income above £100,000, creating an effective 60% tax rate between £100,000 and £125,140. A bonus that takes you into this range is extremely tax-inefficient unless sacrificed into pension first.
Is there a maximum I can sacrifice from my bonus into my pension?
Yes. Your total pension contributions (employer plus employee) cannot exceed the Annual Allowance of £60,000 or 100% of your UK earnings, whichever is lower. Carry-forward allows use of unused AA from the prior three tax years if you've been in a pension scheme.
Try the calculators
Take-Home Pay Calculator
Calculate your net salary after income tax, National Insurance and student loan deductions.
Salary Sacrifice Calculator
Calculate how much tax and National Insurance you save by making salary sacrifice contributions to a pension, cycle to work scheme or EV car scheme.
Pension Calculator
Estimate your pension pot at retirement and projected annual income.
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