Salary sacrifice

Bonus sacrifice into pension — the tax case.

Sacrificing a bonus into a pension instead of taking it as cash is one of the most efficient single transactions in the UK tax system. The numbers make the argument.

By Pension Bible editorial team·Last reviewed 9 April 2026·6 min read

The tax on a £10,000 bonus received as cash

A bonus is employment income. It sits on top of your regular salary and is taxed at your marginal rate in the pay period it is received.

For a higher-rate taxpayer — someone earning above £50,270 in 2025/26 — a £10,000 bonus attracts:

• Income tax at 40%: £4,000
• Employee NI at 2%: £200 (NI rate above £50,270 is 2%)
• Net received: £5,800

For a basic-rate taxpayer whose bonus keeps them within the basic-rate band (below £50,270 total income for the year):

• Income tax at 20%: £2,000
• Employee NI at 8%: £800
• Net received: £7,200

The employer also pays 13.8% employer NI on the bonus as part of the payroll processing. On a £10,000 bonus that is £1,380 — cash that leaves the business to go to HMRC.

Sacrificing the bonus instead: what you actually keep

Salary sacrifice works by agreement: instead of the bonus being processed as salary, you and your employer agree — before payroll runs — that the amount will be directed into your pension as an employer contribution. The bonus never appears as income on your payslip.

Because it is never treated as your income, no income tax and no employee NI apply. The entire £10,000 enters the pension.

The comparison for a higher-rate taxpayer:

In both cases, your take-home pay is the same: in the cash route you receive £5,800; in the sacrifice route you receive £5,800 less than you would have without the bonus (the opportunity cost). But the pension route has £10,000 growing inside the pot versus £5,800 that would be spent or saved outside it.

The comparison becomes even starker when total investment growth and the tax-free 25% pension commencement lump sum are factored in — but the basic point stands on the immediate numbers alone.

Use the salary sacrifice calculator to model a specific bonus amount at your marginal rate, or the pension tax relief calculator for a side-by-side comparison of the relief methods.

The employer NI saving — often passed on

The employer saves £1,380 on a £10,000 bonus that is sacrificed rather than paid as salary. That is a real cash saving in their payroll budget.

What happens to this saving varies by employer:

Pass-through schemes — where the employer directs their NI saving into the pension alongside the sacrificed amount — are common enough to be worth asking about. Under a full pass-through arrangement, the pension receives £11,380 for a £10,000 bonus sacrifice. For a higher-rate taxpayer whose take-home cost is £5,800, that is a £11,380 pension contribution for a £5,800 cash outlay. The effective rate of return before any investment growth is 96%.

Non-pass-through schemes — where the employer keeps the NI saving — still produce the £10,000 pension contribution, which is materially better than the £5,800 from taking cash. The employer saving simply does not compound in the employee's favour.

Whether your employer passes on employer NI savings is one of the most financially significant questions you can ask HR. The answer is usually in the scheme rules documentation, but HR can confirm it.

What to ask HR before your bonus is paid

Timing is the critical variable. Salary sacrifice is a contractual arrangement — it requires an agreement between you and your employer that is in place before the relevant pay period. Once a bonus has been processed through payroll and designated as income, it is too late to sacrifice it. HMRC is clear on this: retrospective rerouting of already-paid earnings as pension contributions does not qualify as salary sacrifice.

The questions to raise with HR, well in advance of your expected bonus payment date:

1. Does the scheme allow bonus sacrifice? Not all workplace pension schemes permit sacrifice of discretionary bonuses — some are set up only for regular salary contributions.

2. What is the deadline for electing? Most employers require sacrifice elections in writing before the payroll cut-off date for the relevant pay period. That cut-off is often two to four weeks before the payment date.

3. Does the employer pass on any NI saving? As above — the difference between a full pass-through and a no-pass-through scheme is £1,380 on a £10,000 bonus.

4. Does bonus sacrifice count towards the annual allowance? Yes — all pension contributions from all sources count. If you have a large employer match plus a salary sacrifice arrangement already running, check whether adding a bonus sacrifice takes you over the £60,000 annual allowance. See the annual allowance checker if you are close to the limit.

5. How will it appear on your payslip? Sacrificed bonuses typically show as employer contributions rather than employee contributions. The P60 figure will reflect the post-sacrifice salary; confirm this is consistent with how you will need to report income.

For workers in the £100,000–£125,140 adjusted net income band, a bonus sacrifice has the additional benefit of reducing adjusted net income — potentially pulling it below £100,000 and restoring the full personal allowance, which creates a further effective tax saving of up to £5,028 (the value of the withdrawn allowance at 40%). This is the same mechanism described in the main salary sacrifice guide, applied to a one-off bonus rather than ongoing salary.

This is factual information, not financial advice. If you're unsure what's right for your situation, speak to an FCA-regulated financial adviser.