A bonus or commission is treated as part of your regular earnings and taxed through PAYE. There is no special “bonus tax rate” — instead, it’s taxed at your marginal rate, which depends on your total annual income.
Why Does My Bonus Seem Heavily Taxed?
When your employer processes a bonus, payroll software assumes you earn that much every month. This can result in more tax being deducted initially, but it’s usually corrected over the following months or at year-end. If a £5,000 bonus pushes your annual income from £48,000 to £53,000, the portion above £50,270 is taxed at the higher rate (40%).
Bonus Sacrifice
Some employers allow you to sacrifice your bonus into your pension, which avoids both income tax and NI on the amount — a potentially significant saving, especially for higher rate taxpayers.