Bonus Timing and Tax: When to Take It, When to Defer, When to Sacrifice

A bonus is taxed as income in the tax year you receive it, not when you earned it. This creates planning opportunities. Depending on your circumstances, you might want to accelerate a bonus into the current year, defer it to next year, or sacrifice it into your pension.

The right choice depends on your salary, the bonus size, and which tax thresholds you're near.

#How Bonuses Are Taxed

Bonuses are subject to income tax and National Insurance at your marginal rate. If your salary already uses up your Personal Allowance and basic rate band, your bonus is taxed at higher rates from the first pound.

Example: You earn £60,000 salary. Your bonus is taxed at:

• 40% income tax (higher rate)
• 2% National Insurance
• Total: 42%

A £10,000 bonus leaves you with £5,800.

If your salary plus bonus pushes you into a threshold zone, effective rates can be higher.

#The Threshold Zones

The worst zone is £100,000-£125,140 where the effective rate is 62% (60% plus 2% NI). A £10,000 bonus in this zone nets you just £3,800.

#Strategy 1: Sacrifice the Bonus into Your Pension

If your employer offers bonus sacrifice (diverting your bonus directly into your pension instead of receiving it as cash), this is often the most tax-efficient option.

How it works: You agree before the bonus is calculated that you'll sacrifice all or part of it. The money goes straight into your pension without ever being taxed.

The benefit: You avoid income tax AND National Insurance on the sacrificed amount. Your employer also saves their NI and might add that to your pension too.

If you're in the 62% trap, sacrificing turns £3,800 of spending money into £10,000+ of pension. That's a 163% improvement.

#Requirements for Bonus Sacrifice

• Your employer must offer bonus sacrifice (not all do)
• You must agree to the sacrifice before the bonus is determined
• You can't sacrifice a bonus you've already been awarded
• The sacrifice can't take your total pay below National Minimum Wage

Check with your HR department whether bonus sacrifice is available and what the deadline is for electing it.

#Strategy 2: Defer to Next Tax Year

If receiving your bonus this year pushes you through a threshold but next year looks different, deferral might help.

When deferral works:

• You're changing jobs and next year's salary will be lower
• You're taking a career break, parental leave, or going part-time
• This year is unusually high due to one-off income
• You're retiring next tax year

Example: Your salary is £95,000. A £20,000 bonus in March would push you to £115,000, deep in the 62% trap. But you're planning to go part-time in April, dropping to £50,000.

If you can defer the bonus to April (next tax year), it's taxed at 40% instead of 62%. On £15,000 of the bonus (the part in the trap), that's a saving of over £3,000.

#How to Defer

Deferral requires your employer's agreement. Options include:

• Asking for payment in April instead of March
• Structuring part of the bonus as a retention payment paid later
• Agreeing to a deferred bonus arrangement

Some employers have policies against deferral (for accounting or fairness reasons). Others are flexible.

#Strategy 3: Accelerate to This Tax Year

The opposite scenario: next year looks worse than this year.

When acceleration works:

• You're expecting a large pay rise or promotion
• You're starting a new job with higher salary
• You're expecting other income next year (property sale, vesting shares)
• This year has unusually low income

Example: You currently earn £55,000 and expect a £10,000 bonus. But from April, you're taking a new role at £95,000. If the bonus lands in the new tax year, it's taxed at 40%. If you can get it paid before April, more of it falls in the basic rate band.

#How to Accelerate

This is harder than deferral. Most employers pay bonuses on their standard cycle. Options:

• Asking for an early payment (rarely granted)
• Negotiating a signing bonus from your new employer instead
• Taking an advance against your bonus (if your employer offers this)

#Strategy 4: Split Across Tax Years

If your bonus is large enough to span multiple thresholds, splitting it might optimise the total tax paid.

Example: You earn £90,000 and are due a £30,000 bonus. Taken in one year:

• £10,000 taxed at 42% (up to £100,000)
• £20,000 taxed at 62% (in the trap)
• Total tax: £4,200 + £12,400 = £16,600
• You keep: £13,400

Split £15,000 this year, £15,000 next year:

• Year 1: £10,000 at 42%, £5,000 at 62% = £7,300 tax
• Year 2: £10,000 at 42%, £5,000 at 62% = £7,300 tax
• Total tax: £14,600
• You keep: £15,400

Splitting saves £2,000 by keeping more income out of the 62% trap.

#Strategy 5: Combine Deferral with Sacrifice

The most powerful approach combines strategies:

1. Defer the bonus to a year where your base salary is lower
2. Then sacrifice most or all of it into your pension

Example: You earn £105,000 this year. You're due a £20,000 bonus. You're going on parental leave next year, expecting £60,000 income.

Option A (take bonus now): £20,000 taxed at 62% = £7,600 kept Option B (defer and take next year): £20,000 taxed at 42% = £11,600 kept Option C (defer and sacrifice): £20,000 in pension (potentially + employer NI)

Option C turns £7,600 of potential spending money into £20,000+ of pension value.

#The Child Benefit Consideration

If you have children and your income is near £60,000-£80,000, bonus timing affects your Child Benefit charge.

Example: Your salary is £58,000. A £10,000 bonus takes you to £68,000, triggering a 40% clawback of Child Benefit. With two children (£2,212 benefit), you lose £885.

Your real tax on that £10,000 bonus:

• Income tax: £4,000 (40%)
• National Insurance: £200 (2%)
• HICBC: £885
• Total: £5,085 (50.8%)

If you can sacrifice £8,000 of the bonus and take just £2,000, you stay at £60,000 and keep all your Child Benefit.

#Tax Year Boundaries

The UK tax year runs 6 April to 5 April. A bonus paid on 5 April falls in one tax year; paid on 6 April falls in the next.

For timing purposes, the payment date matters, not when the bonus was earned or announced. A bonus for 2024 calendar year performance paid in March 2025 is 2024/25 tax year income.

#March vs April Bonus Payments

Many employers pay annual bonuses in March or April. If yours is typically April, you have a natural split across tax years. If it's March, the whole amount hits one year.

Some employers let you choose payment timing if you ask. This is worth asking about well before bonus season.

#What If You Can't Control Timing?

If your employer won't negotiate on timing, focus on what you can control:

1. Pension sacrifice: Most employers allow bonus sacrifice even if they won't change payment dates
2. Personal pension contributions: Make a personal contribution to offset the bonus (you'll get income tax relief, though not NI)
3. Gift Aid donations: Large charitable donations in the bonus year can reduce your adjusted net income

#Planning the Year

If you know roughly when and how much your bonus will be:

1. January: Check your projected year-end income. Will the bonus push you through a threshold?
2. February: Decide on sacrifice vs take. If sacrificing, submit election before the bonus is finalised
3. March: If timing flexibility exists, confirm payment date with HR
4. April: Assess next year's projected income for future planning

#Employer Share Schemes

If your bonus includes shares or share options, different rules apply:

• Share options: Taxed when you exercise, not when granted. You can control timing by choosing when to exercise.
• Restricted stock units (RSUs): Taxed when they vest. Vesting schedules are fixed, but you might negotiate the grant timing.
• Share incentive plans (SIPs): Tax advantages if you hold shares for 5+ years.

Share-based compensation deserves its own planning. The key point: you often have more timing flexibility than with cash bonuses.

#Frequently Asked Questions

#Can I ask for my bonus in next tax year?

You can ask. Whether your employer agrees depends on their policies, payroll processes, and willingness to accommodate individual requests. Some refuse; others are flexible. Ask HR or your manager.

#Does bonus sacrifice reduce my pensionable salary?

Usually no. Most employers calculate pension contributions on your base salary, not including bonuses. But check your scheme rules.

#What if my bonus is discretionary?

The timing strategies still apply. Discretionary means the amount is uncertain, not that you can choose when it's paid. If anything, discretionary bonuses might offer more negotiation room on timing.

#Can I contribute my bonus to an ISA instead?

You can, but there's no tax benefit on the way in. The bonus is taxed when you receive it; ISA benefits only apply to growth within the ISA. Pension sacrifice avoids the tax entirely.

#My bonus puts me just over £100,000. What's the damage?

Every £2 over £100,000 costs you £1 of Personal Allowance. At £102,000, you've lost £1,000 of allowance, costing you £400 extra tax. At £110,000, you've lost £5,000 of allowance, costing £2,000. Consider sacrificing enough to stay at or below £100,000.

#Is it worth deferring a small bonus?

Probably not. The benefit of deferral depends on rate differences between years. If both years have similar income, deferral just delays when you pay the same tax. Focus on sacrifice for small bonuses; consider timing strategies for large ones.