Is Overtime Taxed More in the UK? The Truth About Overtime Tax
This is one of the most persistent myths in UK personal finance: "overtime is taxed more heavily." It is not. There is no special tax rate for overtime pay. Overtime is simply income, and it is taxed at exactly the same rates as the rest of your earnings — your marginal rate.
Why it feels like overtime is taxed more
The illusion arises from how PAYE works on a monthly basis. HMRC calculates your expected annual income by multiplying your monthly pay by 12. In a month where you receive a large overtime payment, your employer projects an annualised income much higher than normal and deducts tax accordingly.
Example: you normally earn £3,000/month (£36,000/year, Basic Rate). In one month you earn £5,000 with overtime. PAYE projects £60,000 annually and deducts tax at the Higher Rate on the extra income. Your payslip shows a large tax deduction — but this is PAYE being cautious, not a special overtime tax.
Will you get the money back?
Yes. PAYE is a cumulative system. By the end of the tax year, the total tax deducted should equal exactly the right amount for your actual annual income. Any over-deduction in months with high overtime is balanced against under-deduction in lower months. If your total income for the year is £36,000 + £2,000 overtime = £38,000, you pay tax on £38,000 — no more.
If you leave the job during the year, HMRC may owe you a refund via a P800 letter, as the cumulative calculation would show over-deduction.
When overtime can genuinely cost more tax
If your total annual income including overtime crosses a threshold — £50,270 (Higher Rate), £100,000 (Personal Allowance withdrawal), or the Scottish equivalents — then the overtime income that pushed you over is genuinely taxed at the higher rate. In this case it is not an illusion: you have moved into a higher band and the overtime caused it.
Frequently asked questions
Why does my overtime payslip show more tax than normal?
PAYE projects your annual income based on that month and deducts accordingly. The following month, when your pay returns to normal, less tax is deducted to compensate. Over the full year, it balances out.
Should I turn down overtime to avoid higher tax?
No. Even if overtime pushes you into a higher bracket, only the income above the threshold is taxed at the higher rate — the rest is unchanged. You always take home more money by earning more, even after tax.