Find out exactly how much of your bonus or overtime pay you’ll actually take home after income tax and National Insurance in 2025/26 — and why the deduction feels so large.
Why does your bonus get taxed so heavily?
Bonuses are taxed as employment income — exactly the same rates as your regular salary. The reason the deduction feels disproportionate is that your bonus is added to your existing income and taxed at your marginal rate — the highest rate that applies to the top slice of your earnings. If your base salary already takes you into the 40% band, every pound of bonus is taxed at 40% income tax plus 2% NI, meaning you keep only 58p of each £1.
There is no special “bonus tax” — but HMRC does require employers to withhold tax on the month the bonus is paid, often using the “Month 1” basis which can cause temporary over-withholding. Any overpaid tax is automatically reconciled at year-end via a P800, or you can reclaim it through Self Assessment.
The Most Tax-Efficient Way to Take a Bonus
If your employer allows it, paying your bonus directly into a pension via salary sacrifice is the most tax-efficient option. You avoid income tax, employee NI (8%/2%) and employer NI (15%) on the entire amount. A £5,000 bonus taken as salary costs around £2,100 in combined taxes at basic rate. The same amount paid into a pension costs nothing in tax, and your employer saves ~£750 in NI which many will add to the pension contribution.
Frequently asked questions
Can I put my bonus into my pension to avoid tax?
Yes — pension contributions reduce your taxable income. If paid via salary sacrifice, the contribution is made before tax and NI, saving both. If made as a personal contribution, you get tax relief at your marginal rate added back by HMRC/your scheme but not NI relief. The pension annual allowance (£60,000 in 2025/26 or 100% of earnings, whichever is lower) limits how much can be contributed tax-efficiently. Unused allowance from the previous three years can also be carried forward.
What if I’ve been emergency-taxed on my bonus?
Emergency tax (code OT Month 1) is sometimes applied to irregular payments like bonuses, treating the payment as if it were your only income that month annualised across 12. This can result in over-withholding. HMRC will automatically reconcile your tax after the year ends and issue a P800 refund. If you’d prefer to reclaim sooner, you can contact HMRC directly or file a Self Assessment return. Check your payslip tax code — if it shows “OT” or “M1”, that’s a signal you may have been emergency-taxed.
Does a bonus push me into a higher tax band?
Only the portion of your bonus that crosses a band boundary is taxed at the higher rate. For example, if your salary is £45,000 and you receive a £10,000 bonus, £5,270 sits within the basic rate band (up to £50,270) and is taxed at 20%, while £4,730 falls in the higher rate band and is taxed at 40%. The calculator above shows this split automatically based on your inputs.
