How are bonuses taxed in the UK?
A cash bonus is employment income, but PAYE, National Insurance and student loans do not all respond to it in exactly the same way.
The short answer
A cash bonus does not have its own special UK Income Tax rate. It is added to employment income. The eventual annual Income Tax depends on total taxable income and allowances, while the amount shown on the bonus payslip depends on the PAYE basis and payroll record at that point in the tax year.
Income Tax: the bonus sits on top
For annual planning, compare Income Tax on salary with Income Tax on salary plus bonus. The extra tax can cross a band. It can also reduce the Personal Allowance when adjusted net income exceeds £100,000, producing an unusually high effective rate within the taper zone.
A cumulative PAYE tax code normally considers pay and tax to date. A week-1 or month-1 basis looks only at the current period. Previous pay, benefits and code adjustments can therefore change the deduction from a specific bonus payment.
National Insurance: timing matters directly
Employee Class 1 NI is normally calculated for the earnings period in which the bonus is paid. A monthly-paid employee therefore has the bonus added to that month’s NI-able earnings. The main rate applies between the primary threshold and upper earnings limit, with the lower 2% rate above the upper limit.
This can make an annual “salary plus bonus divided by 12” NI estimate wrong for a one-off payment. Our bonus tool uses one selected bonus pay period for the NI difference.
Student and postgraduate loans
Loan deductions also use pay-period earnings. A bonus can move the current period above a plan threshold even if regular pay sits below it. A postgraduate loan may be collected alongside one undergraduate plan using its own 6% rate and threshold.
A worked planning example
For a £48,000 salary, a £1,000 bonus paid in one monthly period, Plan 2 and a postgraduate loan, the standard model produces £200 of eventual extra Income Tax, £31.34 of extra employee NI, £90 of extra Plan 2 deduction and £60 of extra postgraduate deduction. The estimated eventual after-tax value is £618.66.
The example is useful for explaining the parts, but it is not an exact PAYE payslip because it does not know tax code, month, cumulative pay or tax already collected.
Can a bonus be sacrificed into a pension?
Some employers allow a future bonus entitlement to be exchanged for an employer pension contribution before it becomes due. Timing and contractual steps matter: redirecting money after entitlement has arisen is not automatically salary sacrifice. Minimum-wage, pension-allowance and scheme rules still apply.
Official sources
Separate the parts of your bonus.
See the annual Income Tax difference and the extra NI and loan deductions in the bonus pay period.