Is Overtime Taxed More? How Overtime Pay Is Really Taxed

No, there is no special tax on overtime. Overtime pay is added to your normal earnings and taxed at exactly the same rates as the rest of your wages — the only reason it can feel harsher is that overtime sits on top of everything else, so it is taxed at your marginal rate rather than your average rate.

So if you already pay 20% tax and 8% National Insurance, you keep 72p of every extra £1. If the overtime tips you over £50,270, the slice above that line is taxed at 40% with NI dropping to 2%, so you keep 58p in the pound on that part.

Key points

• There is no separate "overtime tax rate". HMRC does not distinguish overtime from basic pay.
• What matters is your marginal rate: 28% for most basic-rate employees (20% tax + 8% NI) and 42% once you pass £50,270 (40% tax + 2% NI).
• One heavy payslip is usually PAYE reacting to a spike, a per-period National Insurance calculation, a student loan deduction or a wrong tax code — not a penalty on overtime.
• Income Tax under PAYE is cumulative, so over-deductions in a big month normally unwind automatically in later months.
• Scottish taxpayers face a 50% marginal rate on non-savings income between roughly £43,662 and £50,270, because 42% tax overlaps with 8% NI.

Is overtime taxed at a higher rate?

No. Your employer does not run overtime through a different tax table. Every pound of gross pay — basic salary, overtime, bonus, commission, shift premium — goes into the same pot, and PAYE works out the tax on the total.

The myth comes from a real feeling: the last pound you earn is always taxed more heavily than your average pound, because your tax-free Personal Allowance and lower bands have already been used up by your basic pay. Overtime is, by definition, the last pound you earn. That is why people say "my overtime got taxed at 40%" when what they mean is "my income has reached the 40% band".

Note also that "time and a half" or "double time" is a gross pay arrangement between you and your employer. Tax has no view on the multiplier — a £200 overtime payment is taxed identically whether it came from 10 hours at £20 or 5 hours at £40.

Your marginal rate for 2026/27

This is the deduction rate that applies to extra earnings for an employee under PAYE. It combines Income Tax and employee Class 1 National Insurance.

Scotland sets its own rates on non-savings income such as wages, while National Insurance stays UK-wide. That produces a different pattern:

The band figures above are the Scottish taxable-income bands added to the £12,570 Personal Allowance. The squeeze between about £43,662 and £50,270 is the harshest point for overtime anywhere in the UK, because the 42% higher rate arrives while NI is still charged at 8%.

Why one payslip looks so heavy

If you worked a mountain of overtime in one month and the deductions looked brutal, one of the following is almost always the explanation.

PAYE is cumulative, and it reacts to spikes

PAYE gives you one twelfth of your Personal Allowance and one twelfth of each tax band per month. In a normal month that works perfectly. In a month where your pay doubles, your year-to-date pay can temporarily run ahead of your year-to-date allowances, so a slice of that month's pay is taxed at 40% even though your annual income will finish comfortably inside the basic rate.

The good news is that a cumulative tax code self-corrects. Once your pay drops back to normal, your year-to-date allowances catch up and the following payslips show less tax — sometimes a refund through the payroll. You do not need to claim it. If it has not unwound by 5 April, HMRC's end-of-year reconciliation should pick it up and issue a P800 calculation.

National Insurance is worked out per pay period

Unlike Income Tax, employee NI is not reconciled across the year. It is calculated fresh each pay period: nothing on the first £1,047.50 a month, 8% up to £4,189.17 a month, then 2% above that.

That per-period rule cuts both ways. A large overtime month can push part of your pay above the monthly upper limit, where NI falls to 2% — so the NI on a lump can actually be lower than on the same money spread evenly. But there is no annual averaging to appeal to either, which is why NI on a bumper month rarely comes back.

Student loan repayments

Undergraduate loan repayments are 9% of earnings above the repayment threshold, and postgraduate loans add 6%, both worked out per pay period with no year-end averaging. A big overtime month therefore triggers a big repayment deduction that will not be refunded even if your annual income stays below the threshold on average.

Your tax code

A non-cumulative code (one marked "W1" or "M1"), a BR code or an 0T code on a second job will tax a spike far more crudely, because it ignores unused allowances from earlier in the year. Overtime landing in a period with an emergency code is a common cause of a shock payslip. You can see the code HMRC has issued through the check your Income Tax service.

Pension and other percentage deductions

If your workplace pension is calculated on qualifying earnings or total pay, overtime increases the contribution too. That money is not lost — it goes into your pension and usually reduces your taxable pay — but it makes the net figure on the payslip smaller than a quick mental calculation suggests.

Crossing a band: where overtime genuinely costs more

There are four points where extra earnings are taxed noticeably harder. None of them is a penalty on overtime specifically, but overtime is often what carries you across the line.

• £50,270. Income Tax jumps from 20% to 40%, NI falls from 8% to 2%. Combined deductions move from 28% to 42% in England, Wales and Northern Ireland.
• £60,000, if you or your partner claim Child Benefit. The High Income Child Benefit Charge starts at £60,000 and takes back 1% of the Child Benefit for every £200 of income above it, fully clawed back at £80,000.
• £100,000. The Personal Allowance is withdrawn by £1 for every £2 of income above £100,000, producing a 60% effective Income Tax rate up to £125,140 — 62% with NI, and around 69.5% for a Scottish taxpayer facing the 45% advanced rate.
• £125,140. The additional rate of 45% (48% in Scotland) applies.

Two things are worth being clear about. First, crossing a band never makes you worse off overall — only the slice above the threshold is taxed at the higher rate. Second, the Child Benefit charge and the allowance taper are based on adjusted net income, so pension contributions and Gift Aid donations reduce the figure that is tested.

Worked example: £4,000 of overtime across the year

Priya earns £48,000 in England and works overtime worth £4,000 over the year, taking her to £52,000.

1. The first £2,270 of overtime sits below £50,270: 20% tax + 8% NI = 28%. Deductions £635.60.
2. The remaining £1,730 sits above £50,270: 40% tax + 2% NI = 42%. Deductions £726.60.
3. Total deductions £1,362.20, so Priya keeps £2,637.80 of the £4,000 — an average of 66%.

Note what did not happen: her original £48,000 salary was not retaxed at 40%. Only £1,730 of new income met the higher rate.

The same in Scotland

A Scottish employee on £48,000 is already a higher-rate taxpayer at 42% but still below the NI upper limit, so the first £2,270 of overtime is taxed at 42% + 8% = 50%, and the balance above £50,270 at 42% + 2% = 44%. Deductions: £1,135 + £761.20 = £1,896.20, leaving £2,103.80 of the £4,000.

Why the big month looked worse than it was

Take Marcus, on £36,000 (£3,000 a month), who picks up £3,000 of overtime in one month.

• Income Tax: by month six his cumulative pay is £24,000 against cumulative free pay of £7,542, giving £16,458 of taxable pay — still inside the £18,850 half-year basic-rate band. Every pound is taxed at 20%, so the tax on the overtime is £600, not £1,200.
• National Insurance: a normal month costs (£3,000 − £1,047.50) × 8% = £156.20. The £6,000 month costs (£4,189.17 − £1,047.50) × 8% + (£6,000 − £4,189.17) × 2% = £251.33 + £36.22 = £287.55. The extra NI on £3,000 of overtime is £131.35 — about 4.4%, because part of it fell above the monthly upper limit.
• Had the same £3,000 been paid as £250 a month, NI would have been 8% throughout: £240. The lump was cheaper.

Marcus's payslip still looked alarming in cash terms — roughly £888 of tax and NI instead of £505 — but the deduction rate on the overtime was 24.4%, lower than his usual 28%.

What to do next

Run the numbers rather than guessing from the size of the deduction. The overtime calculator shows what a given number of extra hours is worth after tax and National Insurance at your marginal rate, and the take-home pay calculator shows the annual picture once the overtime is included, so you can see exactly where the £50,270 line falls for you.

If a single payslip looks wrong rather than just heavy, check your tax code first — a W1/M1 or BR code on a spike month is the usual culprit, and a cumulative code will normally return any over-deduction within a month or two.