Finance

Bonus Tax Explained 2026/27: Why Your Bonus Gets Taxed So Much

Learn how UK bonuses are taxed through marginal income tax, NI, and the 100,000 personal allowance taper.

There is no separate bonus tax

A common UK payroll myth is that bonuses have their own special tax rate. In most cases they do not. A cash bonus is employment income, so payroll adds it to your taxable pay and applies PAYE income tax and employee National Insurance. It feels different because a bonus arrives on top of salary, which means it is usually taxed at your marginal rate rather than spread across lower bands.

Use the AtlasPeak Bonus Tax Calculator to compare your take-home pay before and after a bonus. That is the cleanest way to see the marginal tax, NI, net bonus, and effective deduction percentage.

Marginal tax is the key idea

Your salary uses up your personal allowance and lower tax bands first. A bonus is then stacked on top. If your salary already reaches the higher-rate band, much or all of the bonus may be taxed at 40% income tax plus National Insurance. If it pushes you into the additional-rate band, part of it may be taxed at 45%. The bonus has not been singled out; it has simply landed in the most expensive part of your income.

National Insurance also matters. For many employees in category A, the main employee NI rate is 8% between the primary threshold and upper earnings limit, then 2% above that. Depending on where your salary sits, the bonus can attract NI as well as income tax.

The 100k taper trap

The most painful range is often between 100,000 and 125,140 of total income. In this band, the personal allowance is withdrawn by 1 for every 2 of income above 100,000. That creates an effective 60% income tax rate on that slice before employee National Insurance. A bonus that moves income through this range can therefore look heavily reduced on the payslip.

This is not a payroll error. It is the interaction between normal tax bands and the personal allowance taper. The result is why some people consider pension contributions or salary sacrifice, where appropriate, to reduce adjusted net income. That decision depends on cash-flow needs and pension rules, so it should be considered carefully.

Timing, payroll, and corrections

PAYE is designed to collect tax during the year, but it can be imperfect around irregular pay. A large one-month bonus may cause payroll software to assume a higher annual income for that period. In many cases the position corrects across later payslips or through a tax calculation after the year ends, but the immediate month can still feel surprising.

If a bonus arrives close to year end, there may be less time for payroll smoothing. Check the payslip, tax code, and pension treatment rather than focusing only on the bank deposit. The gross bonus, tax, NI, pension deduction, student loan deduction, and net pay together explain what happened.

What you actually keep

The useful number is the net bonus: gross bonus minus extra income tax and NI. For budgeting, treat that net amount as the money available for savings, debt repayment, spending, or investment. If you are comparing job offers, ask whether bonuses are guaranteed, discretionary, pro-rated, or paid only after a qualifying date.

Run the Bonus Tax Calculator again with the salary and bonus you expect. It helps you plan with the amount you actually keep, not the headline figure in an offer letter.

FAQ

Is there a separate bonus tax in the UK?

No. A bonus is normally taxed as employment income through PAYE, but it can feel heavily taxed because it sits on top of salary and is charged at your marginal rate.

Do you pay National Insurance on a bonus?

Usually yes. Employee National Insurance applies to bonus pay through payroll, using the same category and thresholds as other employment earnings.

Why is the 100k to 125,140 range so expensive?

In that range the personal allowance tapers away by 1 for every 2 of income, creating an effective 60% income tax band before National Insurance.

Try the calculator

Put the guide into practice with the UK Bonus Tax Calculator and check your own numbers.

Use UK Bonus Tax Calculator