A cash bonus is treated as ordinary employment earnings in the UK. HMRC normally collects Income Tax and Class 1 National Insurance through PAYE, and your bonus can also affect deductions such as Student Loan repayments. There is no separate UK bonus tax rate.
The tax you pay depends mainly on your total taxable income. A bonus that falls into your basic-rate band is taxed differently from a bonus that falls into your higher-rate or additional-rate band.
How Much Tax Do You Pay on a Bonus?
For the 2026/27 UK tax year, employees in England, Wales and Northern Ireland generally pay Income Tax at the following rates after their Personal Allowance:
| Tax band | Taxable income | Income Tax rate |
|---|---|---|
| Basic rate | Up to £37,700 | 20% |
| Higher rate | £37,701 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
The standard Personal Allowance is £12,570. It is reduced by £1 for every £2 of adjusted net income above £100,000 and is fully withdrawn at £125,140.
National Insurance on Bonuses
Employee Class 1 National Insurance is also deducted through payroll. For most employees in the 2026/27 tax year, the rates are:
| Earnings band | Employee NI rate |
|---|---|
| Between the Primary Threshold and Upper Earnings Limit | 8% |
| Above the Upper Earnings Limit | 2% |
The annual Primary Threshold is £12,570 and the Upper Earnings Limit is £50,270. Your actual NI deduction can depend on how and when your employer processes the bonus through payroll.
There Is No Separate Bonus Tax Rate
A bonus is not automatically taxed at 40% or 45%. HMRC adds the bonus to your employment earnings. PAYE then calculates deductions based on your tax code, pay period and taxable income.
For example:
- If your normal salary leaves you within the basic-rate band, part or all of your bonus may be taxed at 20%.
- If your salary already places you in the higher-rate band, the bonus may be taxed at 40%.
- If your income is above £125,140, part or all of the bonus may be taxed at 45%.
- If a bonus takes adjusted net income above £100,000, the loss of Personal Allowance can create an effective 60% Income Tax rate on income within the taper range.
Cash bonuses count as earnings and employers normally deduct PAYE tax and Class 1 National Insurance through payroll.
£1,000 Bonus: How Much Will You Take Home?
The figures below are simplified estimates. They assume the whole £1,000 bonus falls within the stated Income Tax and NI bands and exclude Student Loan deductions, pension contributions, Scottish Income Tax differences and other payroll adjustments.
| £1,000 gross bonus | Estimated Income Tax | Estimated NI | Estimated take-home |
|---|---|---|---|
| Basic-rate employee | £200 | £80 | £720 |
| Higher-rate employee | £400 | £20 | £580 |
| Additional-rate employee | £450 | £20 | £530 |
For many employees, the actual payslip result can differ because PAYE and NI are calculated using payroll rules and the employee’s total pay for the relevant period.
£10,000 Bonus: Estimated Take-Home Pay
Again, these examples assume the whole bonus falls into the stated marginal band.
| £10,000 gross bonus | Estimated Income Tax | Estimated NI | Estimated take-home |
|---|---|---|---|
| Basic-rate employee | £2,000 | £800 | £7,200 |
| Higher-rate employee | £4,000 | £200 | £5,800 |
| Additional-rate employee | £4,500 | £200 | £5,300 |
A £10,000 bonus can cross several tax thresholds. If part of the bonus falls in one band and part falls in another, the final take-home amount will differ from these simplified examples.
The £100,000 to £125,140 “60% Tax Trap”
The 60% tax trap affects employees whose adjusted net income is between £100,000 and £125,140.
Your Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000. This means an extra £100 of income can cause:
- £40 of higher-rate Income Tax on the additional income; and
- the loss of £50 of Personal Allowance, creating another £20 of Income Tax.
The effective Income Tax cost is therefore £60 for each additional £100 within the relevant taper range, before considering National Insurance or other deductions. The Personal Allowance reaches zero at £125,140.
Example: A Bonus Pushes Income Above £100,000
If your adjusted net income before a bonus is £98,000 and you receive a £10,000 bonus, the income between £100,000 and £108,000 can be affected by the Personal Allowance taper.
This is why high earners should review the whole tax year, not simply look at the percentage deducted from the bonus payslip.
Is There a Tax-Free Bonus in the UK?
Most ordinary cash bonuses are not tax-free. A performance bonus, annual bonus, commission payment or cash reward is generally treated as employment earnings and processed through PAYE.
However, some specific arrangements and exemptions can have different tax treatment.
Employee Ownership Trust Bonuses
A qualifying bonus paid by a company owned by an Employee Ownership Trust (EOT) can qualify for an Income Tax exemption of up to £3,600 per employee per tax year, subject to the statutory conditions. National Insurance treatment can still apply. The qualifying conditions are specific, so the exemption should not be assumed simply because an employer uses an employee ownership structure.
Trivial Benefits Are Different From Cash Bonuses
A qualifying trivial benefit can be exempt where it meets the relevant HMRC conditions, including the general £50 limit per benefit. However, a benefit provided as a reward for work or performance does not normally qualify as a trivial benefit.
A £50 gift is therefore not automatically tax-free if it is actually a performance bonus.
Ordinary Performance Bonuses
If your employer pays you £1,000, £5,000 or £10,000 as a standard cash performance bonus, it is normally taxable employment income. PAYE tax and National Insurance are generally deducted through payroll.
How Can You Legally Reduce Tax on a Bonus?
The most relevant options depend on your employment contract, employer arrangements, total income and tax position.
Salary Sacrifice Into a Pension
Where your employer offers a valid salary sacrifice arrangement, you may be able to give up part of your cash bonus in exchange for an employer pension contribution.
This can reduce your taxable employment income because the sacrificed amount is not received as cash salary. It may also reduce employee National Insurance where the arrangement is correctly structured.
Salary sacrifice must normally be agreed before you become entitled to the cash payment. You cannot usually receive a bonus and then retrospectively convert it into salary sacrifice.
Pension Contributions and the £60,000 Annual Allowance
The standard pension annual allowance is £60,000 for most people, but your available allowance can be lower because of factors such as the Money Purchase Annual Allowance or the tapered annual allowance.
The annual allowance includes relevant pension inputs, not only your bonus contribution. High earners should therefore check their available allowance before making a large contribution.
Reducing Adjusted Net Income
Personal pension contributions can reduce adjusted net income for certain tax calculations. This may be particularly important where income is close to:
- £60,000 for the High Income Child Benefit Charge;
- £100,000 for the Personal Allowance taper; and
- other income-based thresholds.
A pension contribution can therefore have a larger tax effect than the basic headline rate suggests, particularly for someone whose income would otherwise fall within the £100,000 to £125,140 taper range.
Student Loan Repayments
A cash bonus can increase your earnings for payroll purposes and may trigger or increase Student Loan repayments if your income exceeds the applicable repayment threshold.
Sacrificing pay before it becomes taxable earnings can affect payroll deductions, but the outcome depends on the repayment plan and how the arrangement is structured. Check your payslip and obtain advice for significant bonus or pension planning.
Does Paying More Tax on a Bonus Mean You Have Been Overcharged?
Not necessarily. A large bonus paid in one month can make the tax deduction look unusually high because PAYE uses your pay information and tax code when calculating deductions.
Your final Income Tax liability is based on the relevant tax-year rules and your total taxable income. If too much tax has been deducted, HMRC may correct the position through PAYE or a refund, depending on your circumstances.
National Insurance calculations also operate differently from annual Income Tax calculations. This means the amount deducted when a bonus is paid can depend on the payroll period.
Why Is My Bonus Taxed So Much?
Your bonus may appear heavily taxed for several reasons:
- Your salary already uses the basic-rate band, so the bonus falls into the 40% band.
- Your income exceeds £50,270, meaning additional earnings are above the Upper Earnings Limit for standard employee NI purposes.
- Your income exceeds £100,000, causing a reduction in your Personal Allowance.
- You have a Student Loan, creating an additional payroll deduction.
- You make pension contributions through payroll.
- Your tax code is not the standard code because HMRC has adjusted your allowances.
- The bonus is processed in a particular payroll period, affecting the PAYE calculation shown on that payslip.
PAYE deductions should be checked against your full income and tax position rather than judging the result from the bonus line alone. HMRC provides a calculator for employees to estimate Income Tax, NI, pension deductions and Student Loan repayments for the current tax year.
How HR and Employers Should Process Bonuses?
Cash bonuses count as employee earnings. Employers generally need to:
- Add the bonus to relevant earnings through payroll.
- Calculate PAYE Income Tax.
- Deduct employee Class 1 National Insurance where applicable.
- Pay employer National Insurance where required.
- Report the payment through the normal payroll process.
The employer’s payroll software normally calculates the deductions using the employee’s pay, tax code and applicable thresholds.
How to Check Tax on Your Bonus?
Check Your Payslip
Review:
- Gross bonus
- PAYE Income Tax
- Employee National Insurance
- Pension deductions
- Student Loan deductions
- Other authorised deductions
Check Your Tax Code
Your tax code affects how much Income Tax your employer deducts. A code different from the standard code may reflect changes to your Personal Allowance or adjustments made by HMRC.
Review Your Total Annual Income
Add your:
- Salary
- Bonus payments
- Taxable benefits
- Other employment income
- Relevant investment or property income
This is particularly important if your income is close to £60,000, £100,000 or £125,140.
Use an HMRC Tax Calculator
HMRC employee tax calculator can estimate current-year take-home pay after Income Tax, National Insurance, pension contributions and Student Loan repayments. HMRC Income Tax and take-home pay calculator
Check Your P60 or P45
Your P60 shows your pay and deductions for the completed tax year with that employer. A P45 provides relevant pay and tax information when you leave employment.
These documents can help you compare payroll deductions with your total earnings.
Get Advice Before Sacrificing a Large Bonus
A bonus can push you into a different tax position. This is particularly important for high earners, employees close to the Personal Allowance taper and taxpayers considering pension planning.
Before making a significant decision, review:
- Your expected total income for the tax year
- Your PAYE tax code
- Pension annual allowance availability
- Salary sacrifice terms
- Student Loan repayments
- Child Benefit thresholds
- Other taxable income
A UK tax specialist can review the interaction between your bonus, salary, pension contributions and adjusted net income and help you understand the available options.
Frequently Asked Questions
How much tax do I pay on a bonus in the UK?
There is no separate bonus tax rate. A cash bonus is treated as employment earnings and generally has PAYE Income Tax and Class 1 National Insurance deducted. The amount depends on your total income and applicable tax bands.
How much tax is taken from a £1,000 bonus?
If the entire £1,000 falls into the basic-rate Income Tax band and the 8% NI band, the simplified estimate is £720 take-home. If it falls into the higher-rate band and the 2% NI band, the simplified estimate is £580 take-home.
How much tax is taken from a £10,000 bonus?
A simplified estimate is £7,200 take-home where the whole bonus is taxed at 20% with 8% NI, or £5,800 take-home where the whole bonus is taxed at 40% with 2% NI. Your actual result can differ if the bonus crosses tax bands or other deductions apply.
Is there a tax-free bonus in the UK?
Standard cash bonuses are generally not tax-free. Specific exemptions can apply in limited situations, including qualifying EOT bonuses, but statutory conditions must be met. Cash performance bonuses are normally treated as taxable earnings.
Why is my bonus taxed at 40%?
Your bonus may fall into the higher-rate Income Tax band because your normal salary has already used your basic-rate band. This does not mean bonuses have their own 40% tax rate. Your total taxable income determines the applicable Income Tax bands.
Can I put my bonus into a pension to reduce tax?
Potentially. A properly arranged salary sacrifice or pension contribution can provide tax advantages, depending on how it is structured and your available pension allowance. Check the arrangement before you become entitled to the cash bonus.
What is the 60% tax trap on a bonus?
It refers to the effective 60% Income Tax rate that can apply to additional income between £100,000 and £125,140 because your Personal Allowance is withdrawn by £1 for every £2 of adjusted net income above £100,000.
Will a bonus affect my Student Loan repayments?
Yes, a cash bonus can increase your earnings for payroll purposes and may increase Student Loan deductions where applicable. The effect depends on your repayment plan and earnings in the relevant pay period.
Can HMRC refund tax deducted from my bonus?
If you have overpaid Income Tax overall, HMRC may correct your PAYE position or issue a refund depending on your circumstances. Check your tax code, payslips and end-of-year tax information.