How Commission Tax Works in the United Kingdom
Commission earned in the United Kingdom is taxed as ordinary income — it's added to your base salary and the combined total is subject to PAYE using the standard HMRC tax tables. There is no special or reduced tax rate for commission income. HMRC uses the annual equivalent method to smooth out variable income and prevent over- or under-taxation month to month.
Because commission is taxed at your marginal rate (the highest bracket your total income reaches), it often feels heavily taxed compared to your base salary. Your base salary benefits from lower rates on the first portions of income, but commission sits on top and is taxed at the higher bracket. For example, if your base puts you in the 26% bracket, your commission is taxed at 26% or higher.
Commission structures vary widely — from flat percentage rates (e.g., 5% of all sales) to tiered structures where higher sales volumes earn progressively higher percentages. When evaluating commission-based roles, calculate your OTE (On-Target Earnings) to compare total expected compensation, and use this calculator to see the after-tax reality.
Frequently Asked Questions
How is commission taxed in the United Kingdom?
Commission is added to your base salary and taxed as part of your total income at the standard HMRC rates (18–45%). HMRC uses the annual equivalent method to calculate PAYE on variable income. The commission is effectively taxed at your marginal tax rate.
Is commission taxed differently to salary?
No — commission is not taxed at a special rate. It's combined with your salary and the total is taxed per the normal HMRC tables. However, because it pushes your total income higher, the commission portion is typically taxed at a higher marginal rate than your salary's average effective rate.
How do you calculate commission percentage?
For flat rate: Sales × Rate (e.g., £100,000 × 5% = £5,000). For tiered: different rates apply at different thresholds. Sales up to £50,000 at 3%, £50,001–£100,000 at 5%, above £100,000 at 7%. Each tier is calculated separately and totals are added.
What is OTE (On-Target Earnings)?
OTE is your total expected annual earnings if you hit sales targets — base salary plus expected commission. It's the standard way to compare commission-based job offers. Always ask for OTE when evaluating sales roles and understand what the target requires.
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