UK / Checker
Bonus tax checker (UK)
Bonuses, commissions and one-off payments often look brutally over-taxed on the payslip. The tax is usually correct — PAYE rules treat the bonus as if it were a normal pay slice, and your annualised income jumps for that period. PayslipIQ checks whether the bonus has been taxed correctly and whether you should expect a rebalance.
Educational guidance only. PayslipIQ is not HMRC, your employer, a payroll provider, tax adviser, financial adviser, pension adviser or legal adviser. Always verify with payroll or HMRC before acting.
The problem
A bonus pay slip can take 40-50% off the gross bonus before it lands in your bank account. The first reaction is usually that payroll got it wrong. Most of the time they did not — PAYE annualises every period and your annualised income for that period is suddenly far higher.
The bigger questions are: (1) does the bonus push you into a higher band for the period only or for the year? (2) is the student loan deduction correct on the bonus? (3) is the NI calculation correct above the Upper Earnings Limit? (4) will a cumulative code rebalance things at year-end?
Plain-English explanation
How PAYE handles a bonus on a cumulative code:
- Period taxable pay = base pay + bonus.
- YTD taxable pay = YTD before this period + period taxable pay.
- Tax due YTD = YTD taxable pay × band rates − YTD allowance.
- Period tax = tax due YTD − tax already paid YTD.
- Effect: year-end rebalances correctly. The bonus period takes a big hit, later periods less.
On a Month-1 / W1 / X basis, the period is calculated standalone. The bonus period is annualised aggressively and there is no later rebalance — you would need to claim back via Self Assessment or wait for an end-of-year reconciliation.
NI on a bonus: above the Upper Earnings Limit (UEL) the rate drops from 8% to 2%, so a high bonus shows a smaller NI percentage of the bonus itself. Student loan: Plans 1, 2, 4, 5 deduct 9% above threshold; Postgraduate 6%. The thresholds apply to total period earnings including the bonus.
Worked example - £5,000 bonus on a £45,000 salary
- Annual base £45,000 (£3,750 monthly base)
- Period gross with bonus: £8,750
- Cumulative code 1257L: period allowance £1,047.50
- Period taxable pay: £8,750 − £1,047.50 = £7,702.50
- YTD effect: portion now in higher rate band (40%)
- Tax: large vs normal but correct vs annualised income
- Plan 2 SL: 9% above £2,274.50 monthly threshold = ~£583
- NI: 8% to UEL, 2% above on portion in this period
Worked example uses 2026/27 UK figures and is illustrative. Do not use it as a personal tax calculation.
Apply this to your own payslip
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Confirm the tax-code basis
Cumulative codes rebalance year-to-date. M1/W1/X codes do not — they make the bonus period look worse without later relief.
Check student loan deduction
Confirm the right plan. The threshold applies to total period earnings, so a bonus inflates the deduction significantly.
Confirm NI treatment above UEL
Above the Upper Earnings Limit, employee NI drops to 2%. The bonus period may straddle the threshold.
Project to year-end
On a cumulative code the year-end picture is what matters. Use a take-home calculator with annualised income including the bonus.
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What to ask payroll
- Is the tax code on this bonus payslip cumulative or Month-1?
- Has my student loan plan applied at the right rate (9% Plan 1/2/4/5, 6% PG)?
- Did the bonus push my period earnings above the Upper Earnings Limit for NI?
- Was the bonus paid in the period it was earned, or backdated?
- Will a cumulative code rebalance the tax over the rest of the year?
When to contact HMRC
- Use your gov.uk personal tax account to confirm your code is cumulative.
- If you are on Self Assessment, the year-end return will reconcile any over-payment.
- If you have been on M1/W1/X and over-taxed, you can request HMRC to switch to cumulative or claim back via Self Assessment.
FAQ
- Why is so much tax taken off my bonus?
- PAYE annualises every period. Your annualised income for the bonus period is much higher, so more of the slice is taxed at higher rates. On a cumulative code this rebalances over the year.
- Will I get the over-paid tax back?
- On a cumulative code yes — later periods will take less tax. On M1/W1/X you may need to wait for a year-end reconciliation or claim via Self Assessment.
- Is NI lower on bonuses?
- Above the Upper Earnings Limit the employee rate drops from 8% to 2%, so a high-bonus period shows a smaller NI percentage of the bonus.
- Does the bonus affect my student loan?
- Yes. Plans 1, 2, 4 and 5 deduct 9% of total period earnings above the threshold. Postgraduate Loan deducts 6%. A bonus increases the period total and the deduction.
- Should I salary-sacrifice my bonus?
- Possible if your employer offers it — bonus sacrifice into pension reduces taxable AND NIable pay. This is a strategic question for an accountant.
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Educational guidance only. PayslipIQ provides an educational second opinion based on the figures you supply and the public 2026/27 UK PAYE, NI, pension and student-loan rules. PayslipIQ is not affiliated with HMRC and is not a regulated tax, legal, financial, payroll or employment adviser. Verify any final figure with your payroll team, HMRC, your pension provider or a qualified professional before acting.
Published 2026-05-10. Last reviewed 2026-05-10. See our methodology and payslip processing privacy notice.