UK Bonus Tax Calculator

How UK bonus tax actually works

A common myth is that bonuses are taxed at 50%. They're not — they're taxed at exactly the same rates as your salary. The reason payslips look brutal in a bonus month is that PAYE is cumulative: HMRC tracks your year-to-date earnings and adjusts the deduction in each pay period to keep your total tax-to-date correct for what you've earned so far.

So a £10,000 bonus in December (Month 9) pushes your year-to-date earnings well above where they'd "naturally" be at that point of the year. PAYE notices and deducts enough extra tax in that single month to balance the books. It looks like 50% tax. It's actually just nine months' worth of higher-rate tax landing in one month.

By the time you've worked through to April, your full-year tax position is correct. If you received the same bonus on the same salary at the same employer, the total tax for the year is identical regardless of which month the bonus was paid.

Bonuses and the £100k trap

If your salary + bonus pushes your total income above £100,000, the bonus triggers the personal allowance taper — for every £2 of income above £100k, £1 of your £12,570 allowance disappears. That's an effective marginal rate of 62% on the slice between £100,000 and £125,140. A £20,000 bonus that takes you from £95,000 to £115,000 will be taxed at this rate on the £15,000 that lands above £100k.

If you can sacrifice the bonus into a pension (some employers offer "bonus sacrifice"), it never counts as income, never tapers the allowance, and never triggers the trap. For higher earners this is one of the most efficient tax decisions available. See the salary sacrifice calculator for the maths.

Bonuses and student loans

Student loan deductions are 9% (Plans 1, 2, 4, 5) or 6% (postgraduate) of income above the threshold for that pay period. So a bonus in a single month pushes that month's earnings above the monthly threshold by a much bigger margin, generating a bigger one-off student loan deduction. Like Income Tax this is balanced over the year, but unlike Income Tax there's no end-of-year reconciliation — you just pay more in the bonus month and less in the others.

What to do with a UK bonus

• Sacrifice into pension if you're a higher-rate taxpayer or anywhere near £100k. The effective tax saving is 42–62%.
• Top up your ISA with whatever's left in cash. £20,000 annual allowance, completely tax-free growth.
• Pay down expensive debt (credit cards, overdraft, store cards) before anything else. Risk-free guaranteed return at the interest rate.
• Build an emergency fund if you don't already have 3–6 months of essential outgoings put aside.

For the deeper version of how bonuses interact with PAYE, see our full guide to how UK bonuses are taxed.