How to make the most of your bonus pay

Helen Morrissey · Pensions columnist

Mon, 23 February 2026 at 3:00 pm GMT+9 3 min read

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Around one in four UK employees get a bonus, and those who do so are more likely to get it at this time of year than any other — just over half of all bonuses are paid between December and March. It’s not always riches beyond your wildest dreams, but with an average bonus of £2,000, it could make a real difference to your life.

However, if it’s going to work hard for you, it’s key to avoid the bonus bear traps.

1. Don’t drift over a tax threshold

If you’re close to a frozen tax threshold, even a small bonus payment can push you over it and into paying a higher rate of tax on this portion of your pay.

If this is a concern, you can save the tax by paying it into your pension. In fact, if your employer lets you sacrifice some or all of your bonus, and have this paid into your pension, in the current tax year, you avoid paying any tax or national insurance on this chunk of your earnings.

2. Check it doesn’t leave you with an odd tax charge

HMRC adds up everything you’ve earned over a specific period and extrapolates that for the rest of the tax year. The problem is that it doesn’t differentiate between a bonus and your salary, so it can assume you’re on a much higher income, and change your tax code.

**Read more: **Why you should start contributing to your partner’s pension if you can

If your pay packet changes significantly after a bonus, check your code. You can call HMRC to correct it.

3. Don’t let the opportunity to make a change pass you by

This is a golden opportunity to do all kinds of sensible planning. If you have high-cost debt, paying this down is your priority. If you’re on top of that, consider your emergency savings and reviewing your insurance needs. Once these are covered, it makes sense to consider putting money aside for the longer term.

It doesn’t sound as much fun as spending it on a holiday, but the peace of mind could be the best thing you buy all year.

Around one in four UK employees get a bonus but to make it work hard for you, it’s key to avoid the bonus bear traps. · andreswd via Getty Images

4. Guard against lifestyle creep

If you get a bonus and leave it in your current account, you’ll tend to spend it on slightly nicer things as you go through the year. You can get used to them, and you might start making more spending commitments.

The trouble is that when the money runs out, if it isn’t replaced by the same size bonus next year, your salary will no longer cover your lifestyle.

5. Check if it causes pension issues

This is only something that affects people on very high incomes, but it’s worth knowing about. Once you earn over £200,000, if all your income, benefits and pension contributions exceed £260,000, the limit on what you can pay tax-efficiently into a pension each year drops.

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The threshold includes your bonus, so if it pushes you over the threshold towards the end of the tax year, you may already have bust your pension allowance.

There are alternatives to a pension for people in this position — including stocks and shares ISAs — so it’s worth considering this risk in advance if you can.

**Read more: **

**How couples can benefit from joint financial planning**

**5 questions to ask yourself when considering retirement**

**Why it might be OK to have a secret savings account**

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