The single most common payroll question in December is some version of “why has half my bonus disappeared?” The answer is that there is no special bonus tax rate in the UK. A bonus is ordinary earnings. What makes it feel punitive is the interaction between two systems that behave completely differently — and one of them corrects itself while the other does not.
There is no bonus tax rate
A bonus is added to your pay for the month and taxed through PAYE like any other earnings. It is not taxed at 40% because it is a bonus. It is taxed at whatever rate applies to your total income for the year.
For 2026/2027 the bands, on income above the £12,570 Personal Allowance, are:
| Band | Taxable income | Rate |
|---|---|---|
| Basic rate | Up to £37,700 | 20% |
| Higher rate | £37,700 to £112,570 | 40% |
| Additional rate | Above £112,570 | 45% |
Why the bonus month still looks wrong
PAYE is cumulative. Each payday your employer works out the tax due on everything you have earned so far this tax year, subtracts what you have already paid, and deducts the difference.
A large bonus pushes your year-to-date earnings up sharply. For that one month the calculation treats you as though you are heading for a much larger annual income, so a chunk of the bonus is taxed at 40% even if your annual salary sits comfortably in the basic rate band.
The good news: because PAYE is cumulative, this corrects itself. In the months after the bonus your tax deduction falls below normal until the year-to-date figures balance. By 5 April you will have paid exactly the right income tax. You have not lost the money — you lent it to HMRC for a few months.
National Insurance does not correct itself
This is the part almost nobody is told, and it is where a bonus genuinely costs more.
National Insurance is not cumulative. Each pay period is assessed on its own. The employee rate is 8% up to the Upper Earnings Limit of £50,270 a year — about £4,189 a month — and only 2% above it.
A large bonus pushes that single month above the monthly limit, so the excess attracts only 2%. That sounds like a saving, and for the employee it is. But there is no later correction in either direction: whatever National Insurance the bonus month produced is final.
The practical upshot is the reverse of what people assume. Income tax evens out over the year; National Insurance does not. Spreading a bonus over several months usually increases total National Insurance, because more of it falls below the monthly upper limit at 8% instead of above it at 2%.
Worked example: a £5,000 bonus
Sarah earns £2,500 a month, £30,000 a year, on tax code 1257L, National Insurance category A. In December she receives a £5,000 bonus.
| Normal month | Bonus month | |
|---|---|---|
| Gross pay | £2,500.00 | £7,500.00 |
| PAYE | −£290.35 | −£1,952.37 |
| National Insurance | −£116.20 | −£317.55 |
| Take-home | £2,093.45 | £5,230.08 |
Of the £5,000 bonus, Sarah takes home £3,136.63 in that month — about 62.7%. The deduction rate on the bonus is far higher than her usual rate, because the month is assessed as though she earns £7,500 every month, which puts part of it in the 40% band.
An honest caveat on the figures. The PAYE above is what our calculator shows for a £7,500 month in isolation. Under real cumulative PAYE the exact deduction also depends on when in the tax year the bonus falls and how much allowance you have already used — a bonus in April behaves differently from one in December. What does not change is the destination: by 5 April the income tax works out the same either way. The National Insurance figure is exact, because it is assessed on that period alone and never adjusted.
The employer side
A bonus costs the employer more than the bonus. Employer National Insurance at 15% applies to the whole amount, with no upper limit — so a £5,000 bonus costs £5,750 before the Employment Allowance.
Bonuses also count towards your pay bill for the Apprenticeship Levy, and if the bonus is contractual it may need to be included when calculating holiday pay.
The 60% trap between £100,000 and £125,140
If a bonus takes your total income above £100,000, your Personal Allowance is withdrawn by £1 for every £2 of income above it, disappearing entirely at £125,140.
In that band each extra £1 is taxed at 40% and costs you 50p of allowance which is then taxed at 40% — an effective rate of 60%. A bonus that straddles £100,000 is the most expensive money you will ever earn, and it is the single strongest case for salary sacrifice.
Salary sacrifice: the one lever that works
You cannot change how a bonus is taxed, but you can change whether it is taxed at all this year. Sacrificing a bonus into your pension before it is paid means:
- No income tax on the sacrificed amount
- No employee National Insurance
- No employer National Insurance either — so some employers add part of their saving to your pension
- For income between £100,000 and £125,140, it can restore the Personal Allowance
It must be agreed before you become entitled to the bonus — you cannot sacrifice money already paid. The trade-off is that the money is locked up until pension age.
Common misconceptions
- “Bonuses are taxed at a higher rate” — no. Same rates, applied to a bigger monthly figure by a cumulative system.
- “I have been emergency taxed” — usually not. An emergency code is a specific thing; a heavy bonus month on a normal cumulative code is not it.
- “I need to claim it back” — no. Cumulative PAYE corrects automatically over the remaining months.
- “Spreading it saves tax” — it usually costs slightly more National Insurance, and makes no difference to income tax over the year.
- “It is tax-free under £X” — there is no bonus exemption. Trivial benefits are a separate rule and cash never qualifies.
Work out the exact figure with our bonus tax calculator, or produce a payslip showing the bonus alongside PAYE and National Insurance with the free payslip generator. For how the two deductions differ in general, see our National Insurance guide.