Why Was My Bonus Taxed So Much? — UK Guide

Receiving a bonus is great — until you see what's been deducted. It often feels like you've lost 40–50% of the bonus to tax. Here's why that happens, whether it's correct, and what you can do about it.

Why Bonuses Feel More Taxed

There are two main reasons:

1. Marginal rate effect: Your personal allowance and basic rate band are already partly used by your regular salary. Your bonus is added on top, so it's taxed at your highest rate — often 40% or 42% — even if your overall effective rate is much lower.
2. Month 1 coding: Some employers apply a non-cumulative Month 1 code to the bonus payment, meaning they don't give credit for tax already paid this year. This causes overtaxation in that month, which is corrected automatically in subsequent months.

Bonus Tax Calculation — Worked Examples

The effective rate on a bonus depends entirely on which band it falls into — not on your overall salary. A £5k bonus on a £35k salary costs £1,400 in total deductions vs £2,100 on a £55k salary.

Effective Tax Rates on Bonuses

Scotland uses different income tax rates — see our Scotland income tax guide.

How to Reduce Tax on a Bonus

1. Pension sacrifice: Ask your employer to pay the bonus (or part of it) directly into your pension via salary sacrifice. You avoid income tax and NI entirely on that portion.
2. Personal pension contribution: If paid as cash, you can contribute to a SIPP and claim higher-rate relief via Self Assessment — recovering the extra 20% if you're a higher-rate taxpayer.
3. Defer if possible: If you're close to a tax band boundary, asking for a bonus to be paid in a different month or year might keep it in a lower band.
4. Check your code: If you received an emergency or Month 1 code on your bonus, contact HMRC — you may be due a refund in subsequent months.