Do I Pay Tax on Overtime in the UK?

The Simple Answer

Overtime is normal employment income in HMRC's eyes. It gets added to your regular pay, and the total is taxed through PAYE at your applicable rate:

There is no mechanism that identifies "overtime money" separately — it is simply income.

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Why Overtime Feels Like It's Taxed More

Many workers experience a shock when they see a large PAYE deduction in a month with significant overtime. The reason is how PAYE operates:

Example: Regular salary £36,000/year (£3,000/month). In March, you earn £2,000 of overtime on top.

The larger deduction in the overtime month doesn't mean overtime is taxed at 40%. It means PAYE is trying to collect what would be owed if you earned £60,000 all year. In subsequent months (when you return to £3,000), PAYE will under-deduct slightly to correct itself — resulting in a net wash by April.

Cumulative basis vs W1/M1

Most PAYE codes operate on a cumulative basis — HMRC looks at total year-to-date pay and collects the proportional amount of tax. Your payslip shows the cumulative position. Months with high overtime create a temporary excess, which then corrects.

Under W1/M1 (Week 1/Month 1) basis (used on emergency codes or new jobs), each pay period is treated in isolation — meaning overtime genuinely does get taxed at the marginal rate with no correction mechanism in-year. In this case, you'd claim back overpaid tax via Self Assessment or HMRC's online claim form.

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National Insurance on Overtime

Employee NI applies to all earnings including overtime, calculated per pay period:

In the overtime month from the example above (£5,000 gross):

The extra £2,000 of overtime results in £846 more deductions — but £1,154 more take-home pay. The overtime isn't punished, just taxed.

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When Overtime Creates a Real 40% Tax Problem

Overtime does cause a genuine 40% tax issue if it pushes your total annual income above £50,270. A higher rate taxpayer keeps only 58p of every £1 earned above that threshold (40% IT + 2% NI = 42% deducted).

Scenario: Base salary £48,000. You work significant overtime in Q3/Q4 and total earnings reach £55,000.

The £4,730 of overtime above £50,270 results in a net take-home of only £2,743 — about 58% of gross.

Strategies for high-overtime workers

1. Salary sacrifice pension contributions during high-overtime months

Direct the overtime into a workplace pension before tax. The full £2,000 goes into the pension, no tax or NI is deducted.

2. SIPP contribution (if no salary sacrifice available)

Contribute to a SIPP after receiving the pay. For higher rate taxpayers, you reclaim the additional 20% (£400 per £1,000 contributed) via Self Assessment. You still pay NI in the pay period, but recoup the IT.

3. Gift Aid high-value donations

Gift Aid donations extend the basic rate band — reducing the amount of overtime taxed at 40%.

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Overtime and Your Tax Code

If you regularly earn overtime, your tax code may not reflect this — potentially causing an underpayment at year end. HMRC may also issue a revised tax code mid-year (via a P6 to your employer) to collect estimated underpayments in future pay packets.

If you have a consistent pattern of overtime income, consider submitting a Self Assessment return annually to ensure accuracy — especially if any of these apply:

• You have other income sources (rental, savings above PSA, investments)
• Your overtime pushes you above £50,270 or £100,000
• Your tax code is on W1/M1 basis