Find out exactly how much of your bonus or commission you keep after UK income tax and National Insurance — and see how the timing and structure of bonuses affects the tax you pay.
| Option | In Pocket | In Pension | Tax Saved | Total Value |
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Bonuses are taxed as income in the UK — they are added to your salary for the year and taxed at your marginal rate. A £8,000 bonus received by a basic-rate taxpayer costs approximately £2,240 in tax and NI. For higher-rate taxpayers earning near £100,000, bonuses can be taxed at up to 60% effective marginal rate. Understanding this — and the pension sacrifice alternative — can save thousands.
Bonuses are treated as earnings and taxed through PAYE in the month they are paid. The bonus is added to your monthly salary, which can temporarily push you into a higher tax band for that payroll period — though annual reconciliation through Self-Assessment corrects over/underpayment. The effective rate depends on your salary plus bonus falling in different tax bands.
Instead of taking a bonus as cash (and paying income tax + NI), you can sacrifice all or part of it into your pension. The sacrificed amount avoids income tax, NI and (for employer NI purposes) reduces employer NI too. A £8,000 bonus sacrificed into a pension for a 40% taxpayer saves approximately £3,200 in tax — making the effective pension contribution £8,000 from a £4,800 post-tax position. Check with your employer that bonus sacrifice is permitted.
If your salary is between £90,000 and £100,000, a bonus that pushes you above £100,000 triggers the Personal Allowance taper — you lose £1 of allowance per £2 earned above £100,000. This creates a 60% effective marginal rate on bonus income between £100,000 and £125,140. Pension sacrifice is the standard strategy to avoid this trap — contributions reduce adjusted net income below £100,000.
Bonuses are taxed as employment income — added to your base salary and taxed at the marginal rate through PAYE. On a £45,000 salary receiving an £8,000 bonus: the bonus is taxed at 20% income tax + 8% NI = 28% effective rate = approximately £2,240 deducted. For a £60,000 salary receiving the same bonus: higher rate applies = 40% IT + 2% NI = 42% effective = approximately £3,360 deducted. Our calculator shows the exact figure.
Yes — if your employer allows it. Bonus sacrifice means your bonus is paid directly into your pension scheme before income tax and NI are calculated. You forgo the cash but the gross bonus goes into your pension tax-free. A £8,000 bonus sacrificed by a 40% taxpayer saves approximately £3,360 in tax/NI, making the pension contribution equivalent to only £4,640 of after-tax income. Check your employer's flexible benefits policy.
For the employee: a salary increase is usually better long-term because it compounds into all future raises, pension contributions and benefits. A bonus is a one-off payment at your marginal tax rate. However, from the employer's perspective, bonuses are cheaper (they do not compound) and more flexible. The best negotiating position is to ask for both: permanent salary increase plus performance bonus.