How Is Overtime Taxed in the UK?
Overtime pay is taxed exactly the same as your regular salary - there's no special "overtime tax rate." However, overtime often feels more heavily taxed because:
- Your Personal Allowance is already used: Your £12,570 tax-free allowance is typically used by your regular salary
- Every pound of overtime is taxable: Unlike regular pay where part is tax-free, all overtime is subject to tax
- It may push you into a higher tax band: If overtime takes you over £50,270, the excess is taxed at 40%
Example: Basic Rate Taxpayer
Regular salary: £35,000 per year
Overtime earned: £5,000
Since total income (£40,000) stays below £50,270:
- Income Tax on overtime: £5,000 × 20% = £1,000
- National Insurance: £5,000 × 8% = £400
- Take-home from overtime: £3,600 (72%)
Example: Crossing into Higher Rate
Regular salary: £48,000 per year
Overtime earned: £5,000
Total income £53,000 crosses the £50,270 threshold:
- First £2,270 overtime at 20%: £454 tax
- Remaining £2,730 overtime at 40%: £1,092 tax
- Total tax on overtime: £1,546
- Plus NI: approximately £316
- Take-home from overtime: £3,138 (63%)
How to Reduce Tax on Overtime
While you can't avoid tax on overtime, there are legitimate ways to reduce your overall tax bill:
Salary Sacrifice into Pension: Increase pension contributions to reduce taxable income. Get 20-45% tax relief plus NI savings.
Claim Work Expenses: Uniforms, tools, professional subscriptions, and work-related travel can reduce taxable income.
Charitable Giving: Gift Aid donations provide tax relief and can help keep you below a higher tax band.
Use ISA Allowance: Save overtime earnings in ISAs - £20,000 per year tax-free on interest and growth.
Frequently Asked Questions
How is overtime taxed in the UK?
Overtime is taxed at your marginal tax rate in the UK. If your total income including overtime falls within the basic rate band (£12,571-£50,270), you'll pay 20% tax. If overtime pushes you into the higher rate band, the portion above £50,270 is taxed at 40%. You'll also pay National Insurance at 8% on earnings between £12,570 and £50,270.
Why does overtime seem more heavily taxed?
Overtime appears more heavily taxed because your regular salary uses up your tax-free Personal Allowance (£12,570). Overtime is added on top, so every pound is taxable. Additionally, if overtime pushes your total earnings into a higher tax band, that portion is taxed at 40% instead of 20%.
Is overtime taxed at a higher rate than normal pay?
No, overtime isn't automatically taxed at a higher rate. However, it can push your total earnings into a higher tax band. For example, if you earn £48,000 normally and do £5,000 overtime, £2,730 of that overtime would be taxed at 40% as it exceeds the £50,270 threshold.
How much of my overtime do I actually take home?
For basic rate taxpayers, you take home approximately 72p of every £1 of overtime after 20% tax and 8% National Insurance. Higher rate taxpayers keep only 52p per £1 after 40% tax and 2% NI. Your exact take-home depends on your total income and whether overtime crosses tax band thresholds.
Does overtime affect my tax code?
Regular overtime doesn't change your tax code, but it can affect HMRC's estimate of your annual income. If HMRC thinks you'll earn more than expected, they might adjust your tax code to collect more tax. Irregular overtime is collected at the time and may result in a refund if you've overpaid.
Can I reduce tax on my overtime?
Yes, there are legitimate ways to reduce tax on overtime: (1) Salary sacrifice into pension - reduces taxable income, (2) Claim work-related expenses - uniforms, tools, travel, (3) Give to charity via Gift Aid - reduces tax, (4) Use your full ISA allowance for savings from overtime.