Do You Pay Tax on Overtime in the UK? 2025/26 Explained

Quick answer

Yes, overtime is taxed in the UK. Overtime pay is treated as employment income and processed through PAYE (Pay As You Earn) in exactly the same way as your regular salary. HMRC makes no distinction between "regular pay" and "overtime pay" — both are taxed using the same Income Tax rates and National Insurance thresholds.

The rate of tax on your overtime depends on your total annual income, not just the overtime portion itself.

What rate is overtime taxed at?

Rates for England, Wales and Northern Ireland. Scotland has different Income Tax rates.

Why does overtime sometimes get taxed heavily in one month?

PAYE is calculated on a cumulative basis — your employer's payroll software looks at total pay so far this year and projects forward. If you earn a large overtime payment in October, for example:

1. Your total year-to-date pay jumps significantly in that month.
2. The system projects a higher annual income.
3. More tax is deducted in that one month to "catch up" on the projected higher liability.
4. If your overtime was a one-off, you've overpaid in that month.

At the end of the tax year, HMRC reconciles your cumulative position. If you paid too much tax, you'll receive a P800 refund notice or a credit through your tax code the following year.

This is why many employees notice unusually high deductions in months with lots of overtime — the system is working correctly, even if it feels unfair.

Worked example — basic-rate taxpayer

Sarah earns £28,000 base salary (£2,333/month) and works significant overtime in July, earning an extra £1,500 that month.

Normal monthly deductions:

• Taxable pay: £28,000 / 12 = £2,333/month.
• Monthly tax: ~£254.
• Monthly NI: ~£123.

July (with overtime):

• Gross pay: £3,833.
• PAYE system projects annual income: £3,833 × 12 = £45,996.
• More tax deducted in July to reflect the projected higher annual income.
• July take-home is lower than expected.

End of year:

• Sarah's total income: £28,000 + £1,500 = £29,500.
• Tax for the year: (£29,500 − £12,570) × 20% = £3,386.
• Tax paid: may be slightly more; any overpayment is refunded.

The net overtime received (after tax and NI) on £1,500 overtime pay for a basic-rate taxpayer is approximately:

• Income tax: £1,500 × 20% = £300.
• Employee NI: £1,500 × 8% = £120.
• Net overtime pay: £1,080 (72% kept).

Worked example — higher-rate taxpayer

James earns £60,000 base salary. His overtime this year totalled £8,000, taking him to £68,000.

• £50,270 is the higher-rate threshold.
• Income between £50,271 and £68,000 = £17,730 — taxed at 40%.
• NI on income above £50,270 = 2%.
• His overtime of £8,000 is entirely within the higher-rate band (he was already over £50,270 on base pay alone).

Tax on the £8,000 overtime:

• Income tax: £8,000 × 40% = £3,200.
• NI: £8,000 × 2% = £160.
• Net overtime: £4,640 (58% kept).

The £50,270 threshold is a key tipping point

If your regular salary is just below £50,270 and overtime tips you over, the portion above that threshold is taxed at 40% rather than 20%. The combined Income Tax + NI marginal rate jumps from 28% to 42%.

The jump in deductions when crossing the £50,270 band can feel dramatic — but it is working as intended.

How pension contributions can help

Making a pension contribution reduces your taxable income, which can:

• Keep you in the basic-rate band even with overtime.
• Protect your Personal Allowance if overtime pushes you near £100,000.

Example: Jane earns £98,000 base and works £5,000 overtime, total £103,000. Without a pension contribution, £3,000 of her income is in the 60% effective-rate zone (PA taper). If she contributes £5,000 to a SIPP, her adjusted net income drops to £98,000 — preserving the full Personal Allowance.

For an illustration of how this plays out, see our £100k tax trap post.

W1/M1 (Week 1/Month 1) tax codes and overtime

If your employer is using a W1/M1 non-cumulative tax code (shown on your payslip as e.g., 1257L W1 or 1257L M1), each pay period is calculated in isolation rather than cumulatively. This means:

• Overtime is always taxed on a month-by-month snapshot.
• Over-deduction is less likely.
• But under-deduction is possible if your annualised income is lower than a cumulative basis would suggest.

W1/M1 codes are common for new employees or those returning from a break. Contact HMRC or your payroll department if you believe your code is incorrect.

Scotland — same principle, different rates

Scottish residents pay the same NI but Scottish Income Tax rates rather than UK-wide rates. Overtime is taxed at whichever Scottish band it falls in — the Intermediate rate of 21% (£27,492–£43,662) and Higher rate of 42% (£43,663–£75,000) apply instead of the UK's 20%/40% split.

For the full comparison, see Scotland vs England income tax.

Key takeaways

1. Overtime is always taxed — there is no tax-free overtime allowance.
2. The marginal rate depends on total earnings; most workers pay 28% (basic) or 42% (higher).
3. PAYE may temporarily over-deduct in months with big overtime payments — this is reconciled at year-end.
4. Pension contributions are the most effective way to reduce the tax bite on large overtime payments.

Sources

• HMRC: Income Tax rates and Personal Allowance
• HMRC: National Insurance rates
• HMRC: PAYE — understanding your tax code