Bonuses: why so much disappears, and the move that keeps it
A bonus is taxed as the top slice of the year's pay, so it lands at your highest rate plus NI (42% gone for a higher-rate earner, more in the 60% zone), and a bonus sacrificed into a pension is the best-relieved contribution most employees ever make.
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The payslip after a bonus is a reliable shock. Nothing unusual has happened: the bonus is simply taxed as the last pounds earned in the year, which are the most expensive ones.
Where the bonus lands
Tax is charged from the top down, so a bonus sits on top of the salary and is taxed at the marginal rate the salary reached. A £10,000 bonus on £55,000 loses £4,200 to income tax and National Insurance, 42%, leaving £5,800. On £95,000 the bonus pushes into the £100,000–£125,140 zone, where the personal allowance withdraws at £1 per £2 and the marginal rate is about 60%: £5,200 gone, £4,800 kept. PAYE may over-deduct in the bonus month on a cumulative code and correct itself later, but the year-end figures are these. The bonus tax calculator shows yours, including a student loan's 9%.
Bonus sacrifice
Most employers let a bonus be paid into the pension instead, by sacrifice. The whole gross amount goes in: no income tax, no employee NI, and the employer saves 15% NI which many pass on. From April 2029 only the first £2,000 a year of sacrifice stays free of NI, so a large bonus sacrifice will then save income tax but not NI on the rest. For the £55,000 earner the £10,000 bonus becomes £10,000 in the pension for a £5,800 sacrifice of take-home; in the 60% zone it becomes £10,000 for £4,800. The salary sacrifice calculator does the sums, and the carry-forward calculator checks the annual allowance when a large bonus would exceed £60,000 of contributions in the year. The money is locked until 55 (57 from 2028), which is the whole trade.
Other things a bonus does
It can tip a parent over £60,000 for the child benefit charge or £100,000 for the childcare cliff in a single year, both of which sacrifice avoids. And it inflates the salary lenders count for a mortgage only if it is regular. In the Hundred Summers app a bonus is part of compensation with its own probability, so the plan neither relies on it nor ignores it.
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