Overtime Tax & Deductions: How Extra Hours are Taxed in the UK

Working extra hours is an effective way to boost your earnings, but the impact on your take-home pay can sometimes be confusing. A common belief among workers is that overtime is taxed at a higher rate than normal working hours. This is a misunderstanding. In the UK, all earned income is subject to the same tax rates, regardless of whether it is base pay or overtime. However, receiving overtime pay in a specific pay period can alter your tax position on your payslip. In this guide, we look at how overtime pay is processed under the PAYE system and its impact on your tax bands and deductions in the 2026/27 tax year.

How Overtime is Taxed Under PAYE

Your employer’s payroll system calculates tax based on your total gross earnings in the pay period. If you receive overtime pay, this is added to your basic pay, and the combined amount is taxed. Because the PAYE system uses weekly or monthly thresholds, a large overtime payment can temporarily push your earnings for that pay period above the higher-rate threshold (£967 weekly or £4,189 monthly). When this happens, the portion of your pay exceeding the threshold is taxed at the **40% higher rate** on your payslip.

If your total annual earnings (including all overtime) remain below the £50,270 higher-rate threshold, any overdeducted tax on your monthly payslip will automatically correct in future months, or you will receive a refund from HMRC after the tax year ends. If your annual earnings do exceed the threshold, that portion of your overtime is subject to the higher rate.

The Impact of Overtime on National Insurance

Unlike Income Tax, National Insurance is calculated on a non-cumulative basis. Each pay period stands completely alone. The employee National Insurance rates are:

• 8% Rate: Deducted from weekly earnings between the Primary Threshold (£242) and the Upper Earnings Limit (£967).
• 2% Rate: Deducted from weekly earnings above the Upper Earnings Limit (£967).

If a large overtime payment pushes your weekly earnings above £967, you will pay National Insurance at the lower rate of **2%** on the portion above the limit. This means that while your Income Tax deduction may increase to 40%, the rate of National Insurance deducted on your overtime pay actually decreases from 8% to 2%.

Overtime and Student Loan Deductions

If you have a student loan, repayments are calculated as a flat percentage of your earnings above the threshold for your plan. For the 2026/27 tax year, the repayment rates are:

Because student loan repayments are calculated per pay period, any overtime that increases your weekly pay above the threshold will trigger an immediate 9% (or 6%) deduction on that excess. Student loan repayments are non-cumulative, meaning you cannot claim a refund for high payments in busy weeks unless your total annual earnings for the year fall below the annual threshold.

To see how working overtime affects your take-home pay and student loan deductions, use our Income Tax Calculator.

Frequently Asked Questions: Overtime Tax

1. Is overtime taxed at a higher rate in the UK?
No, overtime is not taxed at a higher rate; it is added to your normal pay and taxed according to standard UK Income Tax bands (20%, 40%, or 45%). However, a large overtime payment can temporarily push you into a higher tax band for that specific pay period.

2. How does the PAYE system handle one-off overtime payments?
The PAYE system calculates tax on your combined basic pay and overtime for the current pay period, allocating a standard weekly or monthly personal allowance. If your total pay exceeds the period’s basic rate threshold, the excess is taxed at 40% on your payslip.

3. Will I get back overpaid tax on my overtime?
Yes, if the PAYE system deducts tax at the 40% rate on an overtime payment but your total annual income remains below £50,270, the system will adjust your tax code in subsequent months or HMRC will refund the difference. The adjustment occurs automatically under a cumulative tax code.

4. Do you pay National Insurance on overtime?
Yes, overtime pay is fully subject to National Insurance Contributions. If the overtime pushes your weekly pay above the Upper Earnings Limit (£967), the National Insurance rate on that excess drops to 2%.

5. Can overtime push me into the 60% tax trap?
Yes, if your annual gross income (including overtime) exceeds £100,000, your personal allowance will be tapered, resulting in a marginal tax rate of 60% on earnings within the taper band. This is a key planning consideration for high earners.

6. How is overtime treated for student loan repayments?
Student loan repayments are calculated per pay period, so any overtime that increases your pay above the weekly or monthly threshold will face a 9% (or 6% for postgraduate loans) deduction. These repayments cannot be refunded if your annual income exceeds the threshold.

7. Do workplace pension contributions apply to overtime?
Whether pension contributions apply to overtime depends on your employer’s pension scheme; some calculate contributions on “basic pay” only, while others use “pensionable pay” which includes overtime. Under auto-enrolment rules, qualifying earnings must include overtime.

8. What is the overtime tax rate for a basic rate taxpayer?
For a basic rate taxpayer, overtime is taxed at the flat basic rate of 20% Income Tax and 8% National Insurance. This results in a combined deduction rate of 28% on the overtime earnings.

9. Does working overtime affect my tax code?
No, working overtime does not automatically change your tax code, but it can lead to HMRC adjusting your code if they project your annual income will exceed a specific threshold. You can check your projected income on the personal tax account online.

10. Is emergency tax applied to overtime?
No, emergency tax is only applied if your employer does not have your standard P45 details or tax code; it is not triggered by working overtime. If you are on emergency code 1257L W1/M1, your overtime is taxed based on the current period’s limits only.