Pillar Guide / Updated June 2026

UK Overtime and Bonus Tax: How PAYE Taxes Extra Pay 2026/27

"Why was my bonus taxed at nearly half?" is one of the most common payday questions in the UK. The reassuring answer is that there is no special bonus or overtime tax rate -- extra pay is taxed at your normal bands. But because PAYE and National Insurance work on different timing rules, a bonus or overtime month can look brutal. This 2026/27guide explains exactly how extra pay is taxed, the 60% allowance trap, the National Insurance effect, and how bonus sacrifice into a pension can keep far more of it.

Last updated: 10 June 2026Last reviewed: 10 June 2026How we verify

Key extra-pay tax facts -- 2026/27

No special rate: extra pay taxed at 20%, 40% or 45%
Higher-rate threshold: GBP 50,270 of total income
60% trap: allowance withdrawn between GBP 100,000 and GBP 125,140
Employee NI: 8% then 2% above GBP 50,270, assessed per period
Pension annual allowance: GBP 60,000 (tapered for high earners)
HICBC: Child Benefit clawed back GBP 60,000 to GBP 80,000

There Is No Special Bonus Tax

Overtime, bonuses, commission and other extra pay are all just earnings. They are added to your gross pay and taxed at the same income tax rates as your salary: 20% on taxable income up to GBP 37,700, 40% above the GBP 50,270 higher-rate threshold, and 45% above GBP 125,140. There is no separate, harsher rate that applies simply because the money is a bonus.

What changes is not the rate but the timing and the band the extra pay lands in. A large one-off payment can sit largely above your tax-free allowance for that period and tip into a higher band for the month, which is what makes the deduction look so big on a single payslip.

Why a Bonus Month Looks Worse

Income tax under PAYE is cumulative. Each payday it compares your total pay for the year so far with your total allowance so far, and sets the tax to keep you on track. In a normal month, roughly GBP 1,048 of your pay is tax free. In a bonus month, your monthly allowance is unchanged but your pay leaps, so a much larger proportion is taxable -- and if the spike crosses GBP 50,270 on an annualised basis, part is taxed at 40% for that period.

The good news is the cumulative mechanism self-corrects. If your annual income does not really reach the higher band, later months recalculate and deduct less, repaying the temporary over-deduction through your pay.

National Insurance on Extra Pay

National Insurance behaves differently from income tax because it is assessed per pay period and does not even out across the year. Employee Class 1 NI is 8% on earnings between GBP 12,570 and GBP 50,270 a year, then 2% above. In a bonus month a lot of your pay can fall into the 8% band at once, or -- if you are normally a high earner -- much of the bonus may attract only 2%.

Because NI is not cumulative, you do not get a later refund of NI the way you might with income tax. Your employer also pays 15% employer NI on the extra pay above GBP 5,000, which is part of why bonus sacrifice is attractive to employers.

The 60% Allowance Trap

Once your income passes GBP 100,000, your GBP 12,570 personal allowance is withdrawn at GBP 1 for every GBP 2 of income, vanishing completely at GBP 125,140. In this band you pay 40% tax on the extra income plus an effective extra 20% from losing allowance -- an effective 60% marginal rate. A bonus taken in this range is taxed exceptionally hard.

For example, a GBP 10,000 bonus that takes income from GBP 100,000 to GBP 110,000 attracts GBP 4,000 of tax at 40% plus GBP 2,000 of tax from the GBP 5,000 of allowance lost (taxed at 40%) -- about GBP 6,000 of tax on a GBP 10,000 bonus before NI. This is the classic case for redirecting the bonus into a pension.

Bonus Sacrifice into Pension

If your employer offers bonus sacrifice, you agree before the bonus is paid to swap it for an employer pension contribution. The benefits are substantial:

No income tax at your marginal rate (20%, 40% or 45%) on the sacrificed amount.
No employee National Insurance (8% or 2%) on the sacrificed amount.
Employer saves 15% employer NI, which many add to your pension.
For income between GBP 100,000 and GBP 125,140, sacrifice can restore your personal allowance.
It can keep adjusted net income below GBP 60,000 to protect Child Benefit.

The pension annual allowance is GBP 60,000 (tapered for very high earners), so confirm you have headroom before sacrificing a large bonus.

Student Loan and Child Benefit

Extra pay has knock-on effects beyond income tax. Student loan repayments are 9% of earnings above the plan threshold per period (GBP 29,385 a year on Plan 2), so a bonus month repays more. And if your adjusted net income crosses GBP 60,000, the High Income Child Benefit Charge begins, fully clawing back Child Benefit by GBP 80,000. A bonus pushing you into that range raises the charge -- another reason high earners with children often sacrifice bonuses into pensions.

Worked Examples

Example 1 -- GBP 40,000 salary, GBP 4,000 annual bonus, basic-rate taxpayer.

Total income GBP 44,000 -- still below the GBP 50,270 higher-rate threshold.
The GBP 4,000 bonus is taxed at 20% = GBP 800 income tax.
Employee NI on the bonus at 8% = GBP 320.
Net from the bonus: GBP 2,880 -- even though the bonus month payslip looks heavily deducted, the overall rate is just 28%.

Example 2 -- GBP 100,000 salary, GBP 10,000 bonus, the 60% trap.

Bonus taxed at 40% = GBP 4,000, plus GBP 2,000 effective tax from losing GBP 5,000 of allowance.
Employee NI on the bonus at 2% (already above GBP 50,270) = GBP 200.
Total deductions about GBP 6,200 on a GBP 10,000 bonus.
Sacrifice the GBP 10,000 into pension: GBP 10,000 (plus any employer NI saving) goes to the pension, allowance is preserved, and no income tax or NI is paid now.

Use a salary sacrifice or take-home pay calculator to compare taking the bonus as cash versus sacrificing it.

Frequently Asked Questions

Is there a special "bonus tax" rate in the UK?

No -- there is no separate tax rate for bonuses or overtime in the UK. Extra pay is added to your normal earnings and taxed at your usual income tax bands: 20% in the basic band on taxable income up to GBP 37,700, 40% above the GBP 50,270 higher-rate threshold, and 45% above GBP 125,140. A bonus often looks heavily taxed because it pushes a single pay period above your monthly allowance, and possibly into a higher band for that month, but cumulative PAYE smooths this out across the year so you end up paying the correct overall amount.

Why was my bonus taxed so much in the month I received it?

Cumulative PAYE works out tax on your year-to-date pay against your year-to-date allowance. A large bonus in one month spikes your taxable pay for that period, so more of it sits above the monthly allowance and a slice may temporarily be taxed at 40%. National Insurance can also bite harder because NI is assessed per period -- a big month pushes more pay into the 8% band. The headline deduction looks alarming, but over the full year the cumulative code ensures the tax is exactly right. If you do not earn at that level again, later months may even deduct less.

How is overtime taxed differently from basic pay?

It is not taxed differently -- overtime is simply added to your gross pay and taxed at the same rates. The only practical difference is that overtime is variable, so it can tip a particular pay period into a higher band or higher National Insurance band for that period. Because income tax is cumulative, regular overtime is taxed smoothly across the year at your true marginal rate. National Insurance, charged per period at 8% then 2%, can vary month to month with the amount of overtime you work.

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What is the 60% tax trap and how does a bonus affect it?

Between GBP 100,000 and GBP 125,140 of income, your GBP 12,570 personal allowance is withdrawn at GBP 1 for every GBP 2 earned over GBP 100,000. Losing allowance on top of paying 40% tax produces an effective marginal rate of 60% on income in that band. A bonus that pushes your total income into this range is therefore taxed very heavily -- a GBP 10,000 bonus taken between GBP 100,000 and GBP 110,000 can cost GBP 6,000 in tax and lost allowance. Many people in this band sacrifice the bonus into their pension to stay below GBP 100,000.

Does National Insurance apply to bonuses and overtime?

Yes. Bonuses and overtime are earnings, so employee Class 1 National Insurance applies at 8% on earnings between GBP 12,570 and GBP 50,270 a year, then 2% above GBP 50,270. Because NI is calculated per pay period rather than cumulatively, a bonus paid in one month can push that month largely into the 2% band if your normal pay is already high, or attract a lot of 8% NI if you are usually below the threshold. Your employer also pays 15% employer NI on the extra pay above GBP 5,000.

Can I pay my bonus into my pension to save tax?

Yes -- bonus sacrifice is a common and efficient strategy. If your employer offers it, you give up the bonus before it is paid in exchange for an equivalent employer pension contribution. Because the sacrifice happens before tax and National Insurance, you avoid income tax at your marginal rate (20%, 40% or 45%) and the 8% or 2% employee NI on the sacrificed amount, and your employer saves 15% employer NI -- which many employers add to your pension too. The annual allowance for pension contributions is GBP 60,000, tapered for very high earners, so check you have headroom.

Will I get any overpaid bonus tax back?

If the bonus pushed a month into a higher band but your annual income does not actually reach that band, cumulative PAYE corrects it automatically. In the months after the bonus your tax code recalculates against year-to-date totals, so you may notice lower tax deductions that effectively repay the temporary over-deduction. You do not normally need to claim -- by the end of the tax year your total tax matches your total income. If a genuine overpayment remains after year end, HMRC issues a P800 calculation and a refund.

Does a bonus affect my student loan or child benefit?

It can. Student loan repayments are 9% of earnings above the plan threshold per pay period (for example GBP 29,385 a year on Plan 2), so a bonus month produces a larger repayment. If your adjusted net income crosses GBP 60,000, the High Income Child Benefit Charge starts and fully claws back Child Benefit by GBP 80,000 -- a bonus that pushes you into this range increases the charge. Bonus sacrifice into a pension reduces adjusted net income and can keep you below these thresholds, protecting both your allowance and your Child Benefit.

Why is my emergency tax code taxing my bonus so heavily?

An emergency or "Month 1/Week 1" tax code taxes each pay period in isolation rather than cumulatively, so it cannot use unused allowance from earlier in the year to soften a bonus spike. This makes a bonus paid under an emergency code look especially harsh, but once HMRC issues your correct cumulative code, any over-deduction is reconciled through PAYE or refunded automatically -- you rarely need to claim it back yourself.

Does regular paid overtime count towards my pension and holiday pay?

Often yes. Under UK case law, regularly worked overtime typically needs to be included when calculating statutory holiday pay, and many workplace pension schemes base contributions on total pensionable pay, which can include regular overtime depending on the scheme rules. Check your contract and pension scheme booklet, since occasional or voluntary overtime is treated differently from a settled pattern of extra hours.

Calculators for this topic

Check your Pension

Estimate your pension pot at retirement and projected annual income.

Calculate your Take-Home Pay

Calculate your net salary after income tax, National Insurance and student loan deductions.

Income Tax tool

Work out how much income tax you owe using the latest 2025/26 UK tax bands.

National Insurance tool

Calculate your National Insurance contributions for 2025/26.

About the author

Emma Clarke

UK Tax Writer

Emma Clarke has been writing about UK personal tax since 2018, with a particular focus on Self Assessment, PAYE coding and the practical mechanics of how HMRC actually applies the rules to ordinary salaries. Her work concentrates on translating the dense language of HMRC manuals and Finance Act schedules into worked examples that show, pound by pound, how income tax and National Insurance reduce a gross salary to the figure that lands in a UK bank account. Emma covers the full PAYE lifecycle: tax codes (1257L, BR, K codes, emergency codes), the Marriage Allowance, the High Income Child Benefit Charge, salary sacrifice arrangements and their effect on pensionable pay, the Apprenticeship Levy, and the differences between the rUK and Scottish income-tax regimes. She is particularly interested in the edge cases that catch PAYE employees out — the £100,000 personal-allowance taper, the 60% effective marginal rate it creates, and the interaction between student-loan plans and pension contributions. Every figure in Emma's articles is verified against the current HMRC rates pages and worked through a Self Assessment calculation by hand before publication. She writes to CalcHub's editorial standards: primary-source citations, plain English, no promotional language, and clear "this is general information, not financial advice" disclaimers where appropriate.

Personal-finance writer since 2018
UK tax specialism — PAYE, Self Assessment, National Insurance
Writes to CalcHub editorial standards (primary-source citation, annual review)

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Last updated: 10 June 2026How we verify

Disclaimer: This guide reflects UK PAYE rules for overtime and bonuses in2026/27 as of June 2026. It is general information, not financial advice. Your position depends on your circumstances. See gov.uk income tax rates for HMRC guidance.