Tax on overtime: how overtime pay is taxed

Overtime is taxed in the same way as the rest of your wages. Your employer adds it to your pay for the period and deducts Income Tax and National Insurance through PAYE, using the same rates and bands as for your normal pay. There is no separate overtime tax, but a month with a lot of overtime can show a bigger deduction because PAYE and National Insurance work on each pay period.

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Is overtime taxed at a higher rate?

No. Overtime is employment income like basic pay, and it is taxed at the rate that applies to the slice of income it falls into. For the 2026 to 2027 tax year (6 April 2026 to 5 April 2027), the rates outside Scotland are:

0% on income up to the £12,570 Personal Allowance
20% basic rate on £12,571 to £50,270
40% higher rate on £50,271 to £125,140
45% additional rate on income over £125,140

Scottish taxpayers have different bands, covered in our guide to S and C tax codes. If your overtime takes your total income for the year above £50,270, only the part above that figure is taxed at 40%.

Why does my payslip show more tax in an overtime month?

PAYE does not wait until the end of the year. HMRC’s PAYE manual explains that an employer gives a proportion of your allowances and tax bands for each pay period. For 2026 to 2027 the Personal Allowance of £12,570 works out at £1,048 a month or £242 a week in HMRC’s employer tables.

On the normal cumulative basis, PAYE works on a rolling basis up to each payday and takes into account your previous pay and tax for the year. A big overtime month can use up more of your allowance and basic rate band to date, so the deduction jumps. If your pay then falls back, the tax deducted falls too, or you may get some back through payroll, because the calculation is redone on your total pay to date each time.

If you are on a week 1 or month 1 code, PAYE ignores previous pay and tax and treats every payment as if it were the first of the tax year. Overtime is then taxed on that month alone, with no catching up later in the year through payroll. The 1257L tax code page and our guide to how cumulative PAYE works explain the difference.

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How is National Insurance worked out on overtime?

Employee National Insurance uses earnings periods that match your pay interval, so a weekly paid employee has a weekly earnings period and a monthly paid employee has a monthly one. HMRC’s employer guide says extra payments such as overtime, commission and bonuses are treated as part of the total pay at the time they are paid, no matter when they were earned.

For 2026 to 2027 most employees pay 8% on pay from £242 to £967 a week (£1,048 to £4,189 a month) and 2% on pay above £967 a week (£4,189 a month). So overtime in a month where your pay stays under £4,189 costs 8% in National Insurance, and any overtime that takes the month above £4,189 costs 2% on the excess. Directors are treated differently; see National Insurance for directors.

Your employer also pays Class 1 National Insurance on your overtime, at 15% on earnings above the secondary threshold of £417 a month (£5,000 a year) for 2026 to 2027.

2026 to 2027 figure	Weekly	Monthly	Annual
Personal Allowance (tax free pay)	£242	£1,048	£12,570
Basic rate band (20%)	Not published	Not published	£37,700
Employee NI primary threshold (8% starts)	£242	£1,048	£12,570
Employee NI upper earnings limit (2% above)	£967	£4,189	£50,270
Employer NI secondary threshold (15% above)	£96	£417	£5,000

What does overtime actually add to take home pay?

Illustration only. Priya lives in England, has tax code 1257L on the cumulative basis and earns £2,500 a month. In July she works overtime worth £600, so her gross pay for July is £3,100.

Her pay for the year stays well inside the basic rate band, so the £600 is taxed at 20%: £120.
Her July pay is under £4,189, so the £600 costs 8% National Insurance: £48.
The overtime adds £432 to her take home pay before any pension or student loan deductions.

Her July payslip shows £168 more in deductions than June, which can look like extra tax, but it is the same 28% combined rate she pays on every extra pound of her normal salary. If she later did £2,000 of overtime in a single month, taking that month to £4,500, the part above £4,189 would bear 2% rather than 8% National Insurance. Other deductions also move with gross pay; see student loan deductions in payroll.

Does overtime count towards holiday pay?

Sometimes. Workers are entitled to 5.6 weeks of paid holiday. Government guidance on the 2024 reforms says 4 of those weeks must be paid at the worker’s normal rate of pay, which includes overtime that has been regularly paid in the 52 weeks before the calculation date. The remaining 1.6 weeks can be paid at the basic rate, although the guidance notes that many employers pay all 5.6 weeks at the normal rate.

For irregular hours and part year workers paid rolled up holiday pay, the 12.07% uplift is worked out on total pay in the period, which includes enhanced rate hours. Our page on rolled up holiday pay covers this.

Does my employer have to pay me for overtime?

GOV.UK says employers do not have to pay workers for overtime, but a worker’s average pay for the total hours worked must not fall below the National Minimum Wage. The overtime premium, meaning anything above the basic rate, does not count towards minimum wage pay. The current rates are on our page on National Living Wage rates from April 2026.

Can I get back tax I paid on overtime?

Only if you paid too much over the whole tax year. If your total tax for the year ending 5 April is wrong, HMRC sends a P800 or Simple Assessment letter between June and March of the following tax year, telling you how to get a refund or pay what you owe. A spike in one month on a cumulative code is not an overpayment if the year as a whole comes out right. HMRC can also check an employer’s payroll, and the accountant’s fees for dealing with a check can be covered by tax investigation insurance.

Frequently asked questions

Is overtime taxed at 40%?

Only if it takes your income above £50,270 for 2026 to 2027 outside Scotland. On a cumulative code, a single large month can briefly show 40% deductions that reverse if your pay for the year stays below that figure.

Why does National Insurance go up so much in an overtime month?

Because National Insurance uses the thresholds for the pay period in which the overtime is paid. Most employees pay 8% on monthly pay between £1,048 and £4,189 and 2% above that.

Is overtime paid in a later month taxed differently?

No. For National Insurance, HMRC tells employers to treat extra payments as part of total pay when they are paid, no matter when they were earned.

Is overtime from a second job taxed the same way?

Yes. The rates are the same, but the tax code each employer uses decides how the overtime is taxed in payroll. See our guide to tax on a second job.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 November 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.