A common complaint: "I got a £5,000 bonus but only took home £3,000 — why is my bonus taxed at 40%?" The short answer is that bonuses are not taxed at a special rate. They are added to your regular income and taxed at your marginal rate. But the way PAYE works in the month you receive the bonus can make it feel like more is being taken.
Bonuses are taxed as normal income
HMRC does not distinguish between your salary and a bonus. Both count as employment income and are subject to income tax and National Insurance at the same rates. Your bonus is simply added on top of your regular pay in the month it is paid, and PAYE calculates the tax due on the combined total.
Why the deduction looks so high
PAYE is cumulative. By the time you receive a bonus (often in March or December), you have likely already used up most of your Personal Allowance and Basic Rate band for the year. This means the bonus is taxed at your highest marginal rate — potentially 40% or 45% income tax, plus 2% NI if you earn above the Upper Earnings Limit.
Additionally, National Insurance is calculated per pay period. In the month you receive a large bonus, your earnings for that month spike well above the Upper Earnings Limit threshold, but the 8% rate applies to the portion between the Primary Threshold and Upper Earnings Limit, not just 2%.
The result: a £5,000 bonus for a 40% taxpayer could be taxed at an effective rate of approximately 42% (40% income tax + 2% NI), yielding a take-home of around £2,900. For basic rate taxpayers, the effective rate is approximately 28% (20% tax + 8% NI), yielding around £3,600.
Example: £40,000 salary + £5,000 bonus
On a £40,000 salary, you are a basic rate (20%) taxpayer. Your £5,000 bonus pushes total income to £45,000 — still within the basic rate band (which runs to £50,270 for 2026/27). The entire bonus is taxed at 20% income tax + 8% NI:
- Income tax on bonus: £5,000 × 20% = £1,000
- NI on bonus: £5,000 × 8% = £400
- Take-home from bonus: £3,600
Example: £55,000 salary + £10,000 bonus
On a £55,000 salary, you are already in the Higher Rate band. Your £10,000 bonus is taxed at 40% income tax + 2% NI (since you are above the Upper Earnings Limit):
- Income tax on bonus: £10,000 × 40% = £4,000
- NI on bonus: £10,000 × 2% = £200
- Take-home from bonus: £5,800
Will I get some back at year end?
If PAYE has over-deducted (which can happen if the bonus is paid early in the tax year and projected too much income), the excess is automatically refunded through your payslip in subsequent months. You do not need to file a Self-Assessment return for this — PAYE self-corrects cumulatively.
However, if your employer uses a "Month 1" or "non-cumulative" tax code for your bonus, it will not self-correct. Check with your payroll team or wait until the end of the tax year.
Reducing tax on a bonus
The most effective strategy is to redirect your bonus (or part of it) into your pension via salary sacrifice — before it reaches your payslip. This eliminates both income tax and NI on the sacrificed amount.
For higher rate taxpayers, sacrificing a £10,000 bonus saves £4,200 in tax/NI, meaning £10,000 goes into your pension instead of £5,800 into your bank account. See our salary sacrifice pension guide for more on this strategy.
Calculate your bonus take-home
Use the bonus tax calculator to see exactly how much you will take home from a bonus on top of your regular salary. It handles the month-specific NI calculation accurately — something the standard annual calculator cannot do for one-off payments.