How Are Bonuses Taxed in the UK in 2025? Bonus Tax Rate Explained

How Are Bonuses Taxed in the UK?

Receiving a bonus in the UK is a fantastic reward—but when you see your payslip, it may feel like a lot of it disappears. So how exactly does HMRC tax bonuses, and can you minimise the amount taken?

This guide breaks down everything UK employees need to know about bonus taxation in 2025, including income tax rates, National Insurance contributions, and practical strategies to keep more of your earnings.

Key Takeaways

• Bonuses are taxed just like your regular salary under the UK's PAYE system.
• Both Income Tax and National Insurance are deducted from your bonus.
• Planning your finances smartly can reduce the tax impact.

What Is a Bonus?

A bonus is an extra payment from your employer, typically awarded for excellent performance, reaching sales targets, long service, or as a festive reward. Bonuses can include:

• Annual performance bonuses
• Christmas or holiday bonuses
• Signing bonuses
• Referral bonuses

In the UK, a bonus is treated as part of your total taxable income and taxed accordingly.

Are Bonuses Taxable in the UK?

Yes, bonuses are fully taxable. They are subject to:

• Income Tax
• National Insurance Contributions (NICs)

Bonuses are added to your regular salary and taxed through the Pay As You Earn (PAYE) system, just like your normal wages.

How Are Bonuses Taxed?

Your employer will deduct Income Tax and National Insurance automatically through PAYE when paying your bonus. However, because bonuses can temporarily push you into a higher tax band, you might see a larger deduction than expected.

Income Tax on Bonuses

In 2025, the UK Income Tax rates are:

BandIncome RangeTax RatePersonal AllowanceUp to £12,5700%Basic Rate£12,571 to £50,27020%Higher Rate£50,271 to £125,14040%Additional RateOver £125,14045%

• If your bonus pushes your income into a new band, you’ll pay the higher rate on the portion that exceeds the threshold.

National Insurance on Bonuses

In addition to Income Tax, bonuses are also subject to National Insurance contributions:

• Employee NICs: 12% on earnings between £12,570 and £50,270
• Employee NICs: 2% on earnings above £50,270

Like Income Tax, NICs are deducted automatically via PAYE.

Example:

If you earn £45,000 annually and receive a £5,000 bonus:

• Part of the bonus may be taxed at 20%.
• Any amount over £50,270 will be taxed at 40% for Income Tax.
• NICs will also apply based on your total earnings.

Can You Reduce the Tax on Your Bonus?

You can't avoid paying tax, but you can be strategic:

1. Pension Contributions: Ask your employer to pay part or all of your bonus directly into your workplace pension. Pension contributions can be tax-free.
2. Salary Sacrifice Schemes: Some employers allow bonuses to be sacrificed for benefits like additional pension contributions or childcare vouchers.
3. Time the Payment: In rare cases, employers might allow you to defer the bonus into the next tax year, especially if you expect to earn less and drop into a lower band.

Always consult a financial adviser before making any major decisions.

FAQs: Tax on Bonuses in the UK

Are bonuses taxed differently than salary in the UK?

No. Bonuses are treated as part of your regular income and taxed through the PAYE system.

Why does it feel like most of my bonus is taxed away?

Because bonuses can temporarily push you into a higher tax band, resulting in more deductions for Income Tax and National Insurance.

Will I get some of the bonus tax back?

If your tax code was incorrect or too much tax was deducted, you may receive a refund after HMRC's end-of-year reconciliation.

Can I ask for a bonus to be paid into my pension?

Yes, many employers offer this option. It can reduce your taxable income and boost your pension savings.

Does a bonus change my overall tax band permanently?

No. Your tax band is based on your total annual income. A one-off bonus may temporarily affect deductions but not permanently change your tax band.

Final Thoughts

Bonuses are a welcome financial reward, but understanding how HMRC taxes them can help you manage expectations and reduce surprises on payday. By using strategies like increasing pension contributions or carefully timing the bonus, you can keep more of your hard-earned money.

Looking for more ways to make the most of your income? Check out How to Make My Money Work for Me and How Are Bonuses Taxed for more detailed advice. for proven financial strategies to grow your wealth in 2025.

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