Do I pay tax on overtime?

Yes — overtime is taxed exactly the same as regular pay

Overtime, commission, bonuses, and any other taxable cash earnings from your employment are aggregated with your regular salary and taxed at your marginal income tax and National Insurance rates. There is no special "overtime tax band" and no penalty rate — you simply pay tax on the extra income at whatever rate that extra income falls into.

What can make overtime feel like it is being taxed harder is that the extra hours often push a chunk of the pay into a higher tax band than your regular wage. If your salary is £48,000, your last few thousand pounds of regular pay are taxed at 20%; the first few thousand pounds of overtime above £50,270 are taxed at 40% plus 2% National Insurance. That feels like a step up, but it is the marginal rate of the new income — not a punitive tax on overtime specifically.

Why your first overtime payslip can look wrong

PAYE normally works on a cumulative basis: each payday, payroll compares your total pay so far in the tax year with the tax-free pay and tax bands for the same number of weeks or months. A big overtime month can use up more than that month’s share of the basic-rate band, so part of it may be taxed at 40% even though your pay for the whole year stays below £50,270. In the quieter months that follow you use less than your share, so the tax evens out by the end of the tax year. If you leave the job before it evens out, any overpayment is put right by your next employer through payroll or by HMRC after the year ends.

The exception is an emergency code ending in W1, M1 or X. On those codes tax is worked out on that week’s or month’s pay only, as if you were paid that amount every period of the year, so a large overtime payment is not balanced out by quieter months until HMRC replaces the code (GOV.UK: tax codes and emergency tax codes, checked 3 October 2026). If your tax code is wrong, the correction can be painful. Common triggers: a recent job change, two concurrent jobs without the BR code applied correctly, or HMRC adjusting for a benefit-in-kind. See the why is my tax code BR guide for the typical fixes.

National Insurance on overtime

National Insurance is also paid on overtime, at the same rates as regular pay: 8% on monthly earnings between £1,048 and £4,189 (£242 to £967 a week) in 2026/27, and 2% above that. Unlike income tax, it is not cumulative: each pay period is looked at on its own. If you are low-paid, a big overtime month can take that month over the £1,048 threshold, so you pay 8% NI you would not pay if the same money were spread evenly. If you are well paid, the part of a big month above £4,189 is charged at 2% rather than 8%. Nothing is balanced out at the end of the year, which is one reason the deduction on a big overtime payslip can look different from what you expected.

Hitting the 60% tax trap

The marginal rate above £100,000 jumps to 60% because your Personal Allowance tapers away by £1 for every £2 of income above the threshold. If you earn £95,000 and a £10,000 overtime payment pushes you to £105,000, £5,000 of that overtime is effectively taxed at 60% rather than 40% (62% once 2% National Insurance is added). See the 60% tax trap guide for how pension contributions can bring the marginal rate back down.

Related on this site

Use the bonus and pay rise calculator to model the take-home from a one-off overtime or bonus payment, and the tax calculator to see how the year-on-year picture changes. The salary sacrifice calculator shows how pension contributions can recover marginal-rate tax on the same earnings.

Why the deduction can look so large

The next pound of overtime can land in a higher income-tax band, trigger more National Insurance, hit student-loan deductions, and sometimes interact with Child Benefit or the Personal Allowance taper. That is why the overtime net can feel disproportionately small.

The useful question

The better question is not “is overtime taxed differently?” but “how much of this extra pay do I actually keep?” That answer depends on where the extra pay lands in your overall annual position.

Best next page

Use Bonus, Pay Rise and Overtime Calculator to model the extra income rather than your full annual salary.

Worked example: what you actually keep

Take Sam, a basic-rate employee on a £30,000 salary who works £500 of overtime in a month. All of it sits comfortably inside the basic-rate band, so the deductions are: 20% income tax (£100) and 8% employee National Insurance (£40). Sam keeps £360 of the £500 — an effective deduction of 28%. Nothing unusual; this is the ordinary basic-rate-plus-NI take.

Now take Jordan, on £55,000, who works the same £500 of overtime. Jordan’s salary is already above the £50,270 higher-rate threshold, so the overtime is taxed at 40% (£200) and the National Insurance rate on it drops to 2% (£10), because employee NI falls to 2% above the upper earnings limit while income tax rises. Jordan keeps £290 of the £500 — an effective 42% deduction. Someone on £49,800 would be in between. Over the tax year the first £470 of the overtime is taxed at 20% and the last £30 at 40%. National Insurance looks only at that month’s pay: their usual £4,150 a month is £39 below the £4,189 monthly upper earnings limit, so £39 of the overtime pays 8% and the other £461 pays 2%. They keep about £382 of the £500.

The key point: there is no “overtime rate.” Both workers are simply paying the marginal rate that applies to the band their extra pay falls into. A Plan 2 student loan would take another 9% from both, and in Scotland the income tax rates and bands are different. Model the marginal slice — not your salary — when you decide whether extra hours are worth it.

Student loans and the HICBC trap

Two deductions surprise people more than income tax does. The first is the student loan. Repayments are 9% of everything you earn above the plan threshold (6% for a postgraduate loan), and — like National Insurance — they are calculated per pay period, not cumulatively. A big overtime month can push that period’s pay over the weekly or monthly threshold (for Plan 2, £2,448 a month in 2026/27) and trigger a repayment even if your annual earnings stay below the yearly figure (£29,385 for Plan 2). If your income for the whole tax year ends up below the yearly threshold, you can ask for a refund after the year ends. If it ends up above it, the deductions are not recalculated on an annual basis, so a lumpy overtime pattern can mean repaying more in that year than the same total paid evenly.

The second is the High Income Child Benefit Charge. If overtime lifts your adjusted net income into the £60,000–£80,000 band and your household claims Child Benefit, you start repaying it through the charge — effectively an extra marginal cost on top of 40% tax and 2% NI across that band. Combined with the loss of the Personal Allowance above £100,000 (the 60% trap covered above), a high earner’s extra overtime can be taxed at a true marginal rate well above 40%. A pension contribution reduces adjusted net income, so it can reduce the Child Benefit charge or restore some of the Personal Allowance. Student loan repayments are worked out on the same gross pay as National Insurance (GOV.UK: student loan guidance for employers, updated 6 April 2026), so a pension contribution does not reduce them unless it is made through salary sacrifice, which lowers your pay itself. The adjusted net income calculator shows exactly where you stand against the £60,000 and £100,000 lines.