Why Your Bonus Is Taxed So Much
When your employer pays your bonus through PAYE, they calculate tax using a cumulative method that takes your total annual income into account. If your bonus is paid in a single month alongside your regular salary, the payroll software treats that month's earnings as though you'd earn that amount every month of the year — which can temporarily push you into a higher tax band and result in over-taxation.
The correct way to understand your bonus tax is to look at your marginal rate — the rate at which each extra pound of income is taxed. This is not necessarily 40% or 45%. If your base salary is £35,000, for example, only the portion of your bonus that takes your income above £50,270 is taxed at 40%; the rest is taxed at 20%.
Any over-taxation through PAYE is corrected automatically by HMRC during the tax year via your cumulative tax code, or through a self-assessment tax return if you need to file one.
Bonus Tax by Salary Band (2025/26 reference)
The table below shows the likely marginal rates on the first £ of bonus, depending on your annual base salary. Figures assume England/Wales taxpayer with standard personal allowance.
| Base Salary Range |
Marginal Income Tax |
Marginal NI (employee) |
Combined Marginal Rate |
| Up to £12,570 (Personal Allowance) |
0% |
0% |
0% |
| £12,571 – £50,270 (Basic Rate) |
20% |
8% |
28% |
| £50,271 – £100,000 (Higher Rate) |
40% |
2% |
42% |
| £100,001 – £125,140 (PA Taper Trap) |
60% effective |
2% |
62% effective |
| Above £125,140 (Additional Rate) |
45% |
2% |
47% |
The PA taper at £100,000–£125,140 is a particularly punishing band: for every £2 earned above £100,000, you lose £1 of your Personal Allowance, creating an effective 60% Income Tax rate. Pension contributions made through salary sacrifice can reduce your adjusted net income and potentially rescue your full Personal Allowance.
Worked Examples
£40,000 salary + £3,000 bonus
Gross bonus£3,000
Entire bonus taxed at basic rate (20%)—
Income Tax on bonus£600
NI on bonus (8%)£240
Total deductions£840
Net bonus£2,160
Effective deduction rate28%
£50,000 salary + £5,000 bonus
Gross bonus£5,000
£270 at 20% (spans bands)£54
£4,730 at 40%£1,892
Income Tax on bonus£1,946
NI on bonus (~2%)£95
Total deductions£2,041
Net bonus£2,959
£95,000 salary + £10,000 bonus
Gross bonus£10,000
Triggers PA taper trapYes
£5,000 at 40% + £5,000 at 60%—
Income Tax on bonus£5,000
NI on bonus (2%)£200
Effective deduction rate~52%
Net bonus~£4,800
The £100,000 PA Taper Trap
If your base salary plus bonus takes your income above £100,000, you begin losing your Personal Allowance at a rate of £1 for every £2 over £100,000. This creates an effective 60% Income Tax rate on earnings in this band. You can reduce your adjusted net income — and potentially recover your full Personal Allowance — by contributing the excess into a pension via salary sacrifice. Use our Salary Sacrifice Calculator to see how much you could save.
PAYE Over-Taxation on Bonus Payments
Your employer's payroll system may tax your bonus at an apparent 'emergency' rate if it is paid in a separate payroll run or alongside a regular salary payment. This happens because the PAYE system extrapolates your income for the full year based on that single pay period. Any overpayment of tax is corrected automatically through your tax code during the tax year, or by filing a self-assessment return if necessary. You are not permanently over-taxed — the final position is always reconciled.
Frequently Asked Questions
Why is my bonus taxed at 40% when I'm a basic rate taxpayer?
Your employer's payroll system uses a cumulative PAYE method. When a large bonus is paid in a single month, the software can treat that month's total as your annualised salary, pushing it temporarily into the higher-rate band and deducting 40% tax. This is corrected automatically — usually within the same tax year — as your cumulative tax code brings your payments back into line. By the end of the tax year, you should have paid the correct total amount of tax.
Can I put my bonus into a pension to avoid tax?
Yes — contributing your bonus (or part of it) into your pension through a salary sacrifice arrangement with your employer reduces your adjusted net income. This means you pay less Income Tax and NI on the amount sacrificed. It is particularly valuable if your bonus would push your income above £100,000 (triggering the Personal Allowance taper) or into the higher-rate band. Speak to your employer's HR or payroll team to arrange salary sacrifice before the bonus is paid, as you cannot do this after the fact.
Does my bonus count towards my pension annual allowance?
Only if you actually contribute it to a pension. The bonus itself does not count as a pension contribution — only the amount you choose to pay into your pension (whether personally or via salary sacrifice) counts towards your annual allowance. The pension annual allowance for 2025/26 is £60,000, including employer contributions. High earners may have a tapered annual allowance if their threshold income exceeds £200,000.
How does HMRC calculate tax on a bonus payment?
HMRC calculates tax on a bonus under the normal PAYE rules, using your cumulative income and tax paid for the tax year to date. The bonus is added to your earnings for the pay period, and the system works out how much tax should have been paid cumulatively to date. The difference between tax already paid and the new cumulative figure is the tax deducted from that pay period. Over the full tax year, this means your total tax paid will reflect your actual annual income and correct tax bands — regardless of how any individual payment was processed.
Is a commission payment taxed the same as a bonus?
Yes. Commission payments are treated as employment income by HMRC and taxed in exactly the same way as a bonus or regular salary — through PAYE at your marginal rate of Income Tax and National Insurance. There is no special treatment for commission under UK tax law. The same considerations apply: if commission pushes your income above £50,270 or £100,000, the relevant higher rates and taper rules will apply.
What if my bonus pushes me into the £100,000 PA taper trap?
If your total income (salary plus bonus) exceeds £100,000, you lose £1 of Personal Allowance for every £2 above this threshold. This creates an effective 60% Income Tax rate on the income between £100,000 and £125,140. Options to consider include: (1) making additional pension contributions via salary sacrifice to bring your adjusted net income below £100,000; (2) making a Gift Aid donation, which also reduces your adjusted net income; or (3) accepting the tax charge and claiming the extra basic-rate relief via self-assessment if making personal pension contributions. Always consult a qualified financial adviser before making significant decisions.
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