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How are bonuses taxed in the UK: How much tax will I pay on my bonus?


How are bonuses taxed in the UK? The taxation of bonuses is identical to that of your regular wage. Therefore, you would have to pay income tax, social security, and any additional deductions, like student loan interest, on it.

Are bonuses taxed in the UK?Yes, bonuses are subject to taxation in the UK, according to the tax rate of the earner’s tax bracket.
How are bonuses taxed in the UK?Bonuses are treated like ordinary income and are taxed according to the same tax bracket percentage.
What is a bonus sacrifice?Bonus sacrifice is when you decide to pay a portion, or all, of your bonus into your pension plan in order to receive tax relief on the bonus sum.

Do you pay tax on bonuses in the UK?

Yes, you have tax on bonuses in the UK. As an employee, if you receive a cash bonus from your employer, you are normally obligated to pay income tax and Class 1 National Insurance on the amount awarded, though it is possible to avoid paying taxes on this.

How are bonuses taxed in the UK in 2024?

If you’re eligible for a bonus, you’re probably wondering, how much tax will I pay on my bonus UK? Bonuses are taxed according to your income bracket, at the same rate as what you pay on your regular income earnings.

How are bonuses taxed 40%?

If you earn between £50,270 and £100,000, your income, including any bonuses, will be taxed at 40%. If you are a higher income earner even after retirement, see what options you have for pension tax relief for high earners.

Are bonuses always taxed at 22%?

Bonuses are not taxed at 22%. However, for people who earn between £12,570 and £50,270, the income you earn, including bonuses, will be taxed at 20%, making national insurance contributions at 12%.

How do you calculate tax on a bonus?

How much are bonuses taxed in the UK? Calculating the exact taxes you owe can be complex, but unfortunately, there are not many reliable tax bonus calculators available to help simplify the process. However, we can provide you with an example to make it easier to understand. Say that you make £50,000 a year, putting you in the tail end of the higher tax bracket, paying income tax at 40%. Now let’s say that you received an annual bonus of £1,000. Because bonuses are taxed in the same way as regular income, you will need to pay 40% taxes also on the bonus, or £400 in taxes!

How can I avoid paying tax on my bonus in the UK?

One of the best ways to save on paying taxes is to put your bonus into your pension via “bonus sacrifice”. Through the bonus sacrifice, you can avoid paying taxes and social security on your bonus, but the downside is that you won’t be able to access the bonus payments until you’ve retired.

Here’s how it works. The employer “sacrifices” the bonus, either completely or a part of it, and pays it into their employee’s pension plan instead of giving them cash in the present. But is pension income taxable? Whether you make a full or partial sacrifice, the money you contribute to the plan is tax-free and NIC-free.

Thus, in the long run, you pay less tax on your bonus the more of it you forfeit in the present. Additionally, your former bonus sacrifice has been reborn as a wise investment for when you are ‘state-pension-age’. It makes sense to receive as much of the benefit as you can, even if your job isn’t among those with the best pensions. To start making use of your bonus sacrifice, simply tell your employer that you prefer to have the money deposited into your pension and they should take care of the rest.

If you don’t want to postpone accessing the money until you are pension-age, you may want to consider investing your net earnings into a Stocks and Shares ISA, since this will allow you to invest the money in an investment portfolio that is tax efficient, according to your investment profile, as long as you don’t go over your personal allowance. As long as you stick within your personal annual ISA allowance of £20,000, your stocks and shares ISA contributions will be completely tax-free.

How are bonuses taxed in the UK – are they taxed higher than salary?

In the UK, bonuses are taxed at the same rate as regular income, according to the amount of money earned during the year.

Can I give my employee a tax-free bonus?

The only way for you to award your employee a tax-free cash bonus is to pay the bonus into their pension scheme. In order to be able to do so, your employee must first agree to the bonus sacrifice.

What is the bonus tax rate for 2024?

How are bonuses taxed in the UK in 2024?. The tax rate that you will pay on your bonus will depend on the income bracket that you fall into in 2024:

    • Basic rate: for earners making between £12,571 to £50,270, your bonus will be taxed at 20%
      Higher rate: for those making between £50,271 to £125,140, your bonus is taxed at 40%
      Additional rate: for earners making over £150,000, your bonus is taxed at 45%
    • As per the NICs that you pay on your bonus, the Class 1 NI contributions will amount to 8% for earners in the basic rate bracket, while earnings in excess of £967 per week attract 2%. Class 4 (self-employed) NI contributions will amount to 6%. To keep up to date with the latest NI contribution rates for the 2024/25 tax year, visit this page on the Gov.uk website.

 

    • How are bonuses taxed in the UK – the 60% Tax trap: When your earnings exceed £100,000, the initial tax-free personal allowance of £12,570 is reduced by £1 for every £2 you earn above this threshold, until it disappears entirely at £125,140. This adjustment results in an effective additional 20% tax on earnings between £100,000 and £125,140, adding to the existing 40% tax rate (42% in Scotland).

UK Bonus tax calculation for bonus

Tax BandIncome RangeTax RateNI RateTotal Tax Rate
Personal Allowance£0 to £50,2700%0%0%
Basic Rate£12,571 to £50,27020%8%28%
Higher Rate£50,271 to £125,14040%2%42%
Additional RateOver 125,14045%2%47%
Hidden Tax Gap£100,000 and £125,14060%2%62%

Scotland Tax calculation for bonus

Tax BandIncome RangeTax RateNI RateTotal Tax Rate
Personal Allowance£0 to £50,2700%0%0%
Starter Rate£12,571 to £14,87619%8%27%
Basic Rate£14,877 – £26,56120%8%48%
Intermediate Rate£26,562 – £43,66221%8%49%
Higher Tax Gap£43,663 – £75,00042%2% (above £50,270)44% – 50%
Advanced Tax Gap£75,001 – £125,14045%2%47%
Top RateAbove £125,14048%2%50%

 

Frequently Asked Questions

Will I get a tax refund on my bonus?
Unfortunately, there aren’t many circumstances in which you are eligible for a tax refund for bonuses you’ve already received.

How are bonuses taxed in the UK?
In the UK, bonuses are taxed at the same rate as your normal income, so the rate at which your bonus is taxed will depend on your income bracket.

When does it make sense to use the bonus sacrifice?
Using the bonus sacrifice is a more financially efficient way of receiving bonus payments. For those who don’t need access to the additional bonus funds in the short term, requesting bonus sacrifice makes more monetary sense.

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.