Overtime Tax 2026/27: PAYE and National Insurance

There is no separate UK overtime tax rate. Overtime is normally employment income, so your employer adds it to your pay and operates PAYE Income Tax and, where applicable, Class 1 National Insurance through payroll. The extra hours may appear to be taxed heavily because the payment can move part of your pay into a higher band or because payroll is processing it in a particular earnings period. The overtime itself is not automatically taxed at a special flat percentage.

This guide covers the UK 2026/27 tax year, from 6 April 2026 to 5 April 2027. It explains regular overtime, overtime paid on a separate payday, the difference between Income Tax and National Insurance, Scotland's separate Income Tax bands and what to check when a payslip looks wrong. Use the Overtime Tax Calculator→ to model regular pay and overtime together.

How overtime is taxed

Overtime is added to your employment earnings. PAYE uses your tax code and the Income Tax bands available to you. For 2026/27, the standard Personal Allowance is £12,570. In England, Wales and Northern Ireland, the main Income Tax rates are 20%, 40% and 45%, with the relevant band depending on your taxable income. Scotland has separate bands and rates.

The amount withheld from a single payslip is not the same as a standalone “overtime rate”. Your employer calculates pay through payroll using the information on your Revenue Payroll Notification equivalent for the UK, your tax code, the pay frequency and year-to-date figures. If overtime takes total income above £100,000, it can also affect the Personal Allowance because the allowance is reduced as adjusted net income rises above that level.

National Insurance on overtime

Cash overtime is normally included in earnings for employee Class 1 National Insurance. National Insurance is calculated separately from Income Tax and uses its own thresholds, earnings period and category letter.

For the standard category A rates in 2026/27, employee National Insurance is 8% on earnings above the Primary Threshold up to the Upper Earnings Limit and 2% above that limit. The 2026/27 monthly thresholds are £1,048 for the Primary Threshold and £4,189 for the Upper Earnings Limit. These figures are not a universal overtime deduction: your pay frequency, previous pay in the period, category letter and circumstances can change the result.

Some employees have different category letters, including people under 21, apprentices under 25, veterans and employees with deferment or reduced-rate arrangements. Do not use category A rates for every payslip without checking the letter shown in payroll records.

Why overtime can look like it is taxed at 40% or 45%

Assume an employee has used most of their basic-rate band through their regular salary. The next part of their overtime may fall into the higher-rate band, so the marginal Income Tax on that slice can be 40% in England, Wales or Northern Ireland. A Scottish taxpayer may move through a different band. Employee National Insurance can also apply at the relevant rate, and pension or student-loan deductions may be taken at the same time.

That does not mean all previous salary or all future overtime is permanently taxed at that rate. It means the next slice of taxable pay has crossed a band for the current tax calculation. The correct comparison is the full payslip and full-year position, not the gross overtime multiplied by one percentage.

Overtime paid on a separate payday

HMRC's employer guide contains specific rules where extra payments such as overtime, commission or bonuses are paid on a separate payday from normal pay. For National Insurance, extra payments are treated as part of the total pay at the time they are paid. If another payment is made in the same earnings period, the employer may need to calculate National Insurance again on the total payment.

This is why two employees with the same hourly rate and overtime hours can see different deductions if one is paid with monthly salary and the other is paid on a separate date. The payment date and normal earnings period matter. An employer should follow the HMRC payroll rules for the actual payment arrangement rather than apply an informal overtime percentage.

Regular overtime and variable hours

If your overtime changes every month, your net pay will change too. Payroll cannot guarantee that the same gross overtime amount produces the same net result in every pay period because your salary, overtime, tax code, pension deductions, student-loan plan and National Insurance thresholds interact.

Keep the overtime rate, hours, approval record and payslip. If the employer pays overtime after a correction or in arrears, ask payroll how it has classified and processed the payment. A corrected payslip may change tax or National Insurance without changing the number of hours you worked.

Overtime, pension and student loan deductions

Overtime can increase deductions that are calculated from pay. An employee pension contribution may be calculated on qualifying earnings or pensionable pay under the scheme rules, so not every scheme treats overtime identically. Student-loan deductions can also apply when earnings exceed the threshold for the relevant plan. Payroll software normally uses the plan notice and current thresholds; the overtime does not have its own student-loan rate.

Do not treat pension salary sacrifice, ordinary pension deductions and student-loan repayments as interchangeable. Check the payslip lines and the employer's scheme rules before estimating the net value of extra hours.

A repeatable overtime calculation

Start with the gross result, then work through each deduction separately. Multiply approved overtime hours by the contractual overtime rate and check whether any premium, rest-day payment or time-off-in-lieu arrangement changes the gross amount. Add the overtime to the pay already due in that earnings period. Then identify the tax code, taxable pay, National Insurance category, pension treatment and student-loan plan used by payroll.

Do not subtract one headline percentage from the overtime. Instead, compare a payslip or calculator result with the same pay period without overtime. The difference in net pay is the useful planning figure for that payment. It may not be constant from month to month because a different amount of overtime can cross a band or threshold, and because a separate payday can be processed under different payroll rules. Keep the assumptions visible: tax year, pay frequency, tax code, pension method, student-loan plan and whether the employee is taxed under Scottish or rest-of-UK Income Tax bands.

An illustrative comparison can be made without promising a particular outcome. Take the normal gross pay for a month, calculate the deductions, then add the approved overtime and calculate again. The second result minus the first is the estimated cash value of the extra hours. If the estimate is materially different from the payslip, compare gross taxable pay first. A mismatch in hours or rate is an employment-record issue; a mismatch in PAYE or National Insurance may be a payroll configuration or tax-code issue.

PAYE withholding is not always the final annual bill

PAYE is a collection system. The deduction shown on one overtime payslip reflects payroll information available at that time, not necessarily the final tax position after the tax year closes. A cumulative tax code can adjust deductions as year-to-date pay changes. A non-cumulative or emergency code, a new job, a second employment or a late tax-code update can make one payment look unusually high or low.

If HMRC later changes the tax code, the employer may correct the position through a future payslip. Do not assume that a large deduction proves the overtime was taxed twice, and do not assume that a small deduction proves the payment is permanently tax-free. Compare year-to-date taxable pay and deductions with the HMRC Income Tax service and ask payroll to explain any difference.

If you have two jobs, each employer normally runs its own payroll record. The tax code allocation and total income across employments can affect the final position, even when each individual payslip appears internally consistent. Overtime in one job can also affect student-loan or pension deductions under that employment's rules. Keep each payslip and employment record separate, then review the combined annual position.

Scotland and higher-income interactions

Scottish taxpayers use Scottish Income Tax bands and rates on non-savings and non-dividend income. The National Insurance calculation is separate and is not replaced by Scottish Income Tax. A Scottish employee should therefore use the correct tax code and Scottish rates when estimating overtime rather than copying an England, Wales or Northern Ireland example.

Higher income can create interactions beyond the visible overtime line. Overtime may increase adjusted net income, affect the Personal Allowance above the relevant level, alter pension tax-relief planning or change an income-related repayment. It is safer to model the whole year when overtime is regular or unusually large. A monthly result is useful for budgeting, but it is not a complete forecast of every annual consequence.

Decide whether the extra hours are worthwhile

Tax is only one part of the overtime decision. Compare the estimated net pay with travel, meals, childcare, lost rest, pension effects and any employment benefit that depends on hours or earnings. If the employer offers time off in lieu, compare its value with the cash option and check the written policy. If overtime affects a benefit or student-loan repayment, include that change rather than describing the entire net difference as tax.

For regular overtime, maintain a monthly tracker with hours, gross payment, PAYE, National Insurance, pension, student-loan deduction and net pay. At the end of each quarter, compare the tracker with payslips and year-to-date figures. This creates evidence if payroll corrects an earlier payment and helps distinguish a one-off timing effect from a recurring calculation problem.

When to ask payroll or HMRC

Ask payroll first about the hours, rate, payment date, tax code, NI category and pensionable-pay definition. Ask HMRC about the tax-code allocation or personal tax record when the employer's payroll data is correct but the code appears inconsistent with the wider income position. Keep written questions and replies with the relevant payslip.

Escalate for professional advice where overtime is linked to termination pay, a settlement, an expatriate assignment, employment-related securities, a company director calculation or a complex benefits package. Those payments can have rules that are not captured by an ordinary overtime calculator. A calculator is useful for a clean PAYE scenario; it cannot decide the legal or contractual character of an unusual payment.

Frequently Asked Questions

Model your regular salary and extra hours in the Overtime Tax Calculator→. For a discretionary one-off payment, read the Bonus Tax guide instead; overtime and bonuses are both employment income, but they are different search and payroll decisions.

Official sources

• HMRC — 2026 to 2027 employer guide to PAYE and National Insurance — payroll treatment and separate-payday rules.
• GOV.UK — Rates and thresholds for employers 2026 to 2027 — current PAYE and National Insurance thresholds.
• GOV.UK — Income Tax rates and Personal Allowances — tax bands and allowances.
• GOV.UK — National Insurance rates and categories — employee categories and rates.
• GOV.UK — PAYE for employers — PAYE administration and payroll responsibilities.

This guide is general educational information for the UK 2026/27 tax year. The employer payroll record, tax code, National Insurance category, pension scheme, student-loan plan and taxpayer circumstances control the final result. It is not a payslip correction, tax calculation or personal financial advice.