How to Work Out Tax on Overtime: Why the Deduction Looks Too Big (2026/27)

This guide is general information, not advice.

This guide is for an employee paid through PAYE who has worked overtime and found that less of it reached their bank account than expected. It shows how to work out what the overtime should have cost in tax, National Insurance and student loan, why one month can look over-taxed, and whether it comes back.

By the end you will be able to check an overtime payslip line by line. How bonuses are taxed is covered in the bonus tax worked examples; overtime follows the same rules, and this guide is the procedure for checking one.

Before you start

• Your payslip for the overtime month and a normal month, to compare gross pay, tax, NI and any student loan line.
• Your tax code, printed on the payslip. Note whether it ends in W1, M1 or X; GOV.UK’s emergency tax codes page explains those.
• How often you are paid (weekly or monthly), because NI and student loan thresholds are set per pay period.
• Your student loan plan, if you have one.
• A rough figure for your total pay this tax year (6 April 2026 to 5 April 2027), including the overtime.

Step-by-step

1. Accept that there is no overtime rate

Overtime is ordinary pay. HMRC’s employer guide CWG2 tells payroll to “treat extra payments as part of the total pay at the time they’re paid, no matter when they were earned”. So overtime worked in March but paid in April counts in April, and March 2027 overtime paid in April 2027 falls in the 2027/28 tax year.

2. Find your marginal rate

From the 2026/27 rates on GOV.UK’s Income Tax rates page, outside Scotland: 0% up to the £12,570 Personal Allowance, 20% to £50,270, 40% to £125,140 and 45% above. Employee NI, per GOV.UK, is 8% on £1,048 to £4,189 a month (£242 to £967 a week) and 2% above that. So each extra pound costs:

Where your pay sits	Income Tax	NI	Total	With Plan 2 loan (9%)
Basic rate	20%	8%	28%	37%
Higher rate	40%	2%	42%	51%

If you pay Scottish Income Tax the bands and rates are different, so use the NI and student loan columns only. Student loan rates, per GOV.UK, are 9% over the threshold for Plans 1, 2, 4 and 5 and 6% for a Postgraduate Loan.

3. Check whether your code is cumulative

HMRC’s PAYE Manual at PAYE11090 says codes are “most often operated using the cumulative basis”, giving you a share of your allowances and bands for each pay period to date. The week 1 / month 1 basis “ignores previous pay and tax”. The difference decides whether a heavy overtime month corrects itself (see the second worked example).

4. Check each threshold against the right period

• Income Tax runs on pay to date on a cumulative code. Whether you are a higher-rate taxpayer depends on the year’s total, not one month.
• NI is due on earnings “in each interval” above the Primary Threshold, per CWG2. It is not evened out across the year.
• Student loan: GOV.UK says “you’ll make a repayment if your income goes over the weekly or monthly threshold for your plan (for example, if you’re paid a bonus or overtime)”. The Plan 2 thresholds are £29,385 a year and £2,448.75 a month on HMRC’s employer rates page.
• £100,000 taper: GOV.UK says your Personal Allowance “goes down by £1 for every £2 that your adjusted net income is above £100,000”, reaching zero at £125,140. That is an annual test; the 60% trap section of the bonus page covers it.
• High Income Child Benefit Charge: 1% of your Child Benefit for every £200 of adjusted net income over £60,000, per GOV.UK, and the whole amount at £80,000. Also an annual test.

5. Check the payslip with a calculator

The salary calculator has a Bonus field with a month selector. Enter the overtime there and pick the month it was paid: the payslip panel shows that month as payroll runs it, with cumulative tax and NI and student loan against the month’s own thresholds. For hourly workers, the hourly calculator turns an hourly rate into annual and monthly take-home.

Deadlines and what happens next

• Cumulative code. Over-deducted tax comes back through lower deductions in later pay periods of the same tax year, with no claim.
• W1, M1 or X code. GOV.UK says on an emergency code “you get taxed as if you’re paid that amount every week or month of the year”. Any excess stays until HMRC checks the year: it sends a P800 or Simple Assessment letter between June and March of the following tax year.
• Student loan. GOV.UK says “you can ask for a refund at the end of the tax year if your annual income is less than the yearly threshold for your plan”. The student loan refund guide walks through the claim.
• Still wrong? Ask payroll first. If the code itself looks wrong, GOV.UK’s tax code guidance says to update your details in Check your Income Tax, and HMRC will tell you and your employer any new code “within 15 working days”. Otherwise phone the Income Tax helpline on 0300 200 3300, per HMRC’s contact page.

Common mistakes

• Dividing the deduction by the overtime. The NI and student loan on it are real costs, but they are not Income Tax.
• Treating one month as the year. A month taxed partly at 40% on a cumulative code usually evens out; check the year to date line.
• Expecting NI back. NI is worked out period by period, not reconciled over the year like tax.
• Forgetting the pay date. Overtime counts in the period it is paid, which can be a different tax year from when it was worked.
• Ignoring a W1 or M1 code. Nothing evens out on it in-year; see how to read a PAYE coding notice for getting the code corrected.

Worked example

All rates and thresholds from the 2026/27 ruleset (GOV.UK sources above), outside Scotland, monthly paid, cumulative code 1257L. HMRC’s payroll tables round the monthly figures slightly, so a real payslip can differ by a few pence or pounds.

One overtime month at basic rate. Salary £27,000, so £2,250 a month, with a Plan 2 loan. In October you are paid £600 of overtime, making £2,850.

• Income Tax: £600 at 20% = £120.
• NI: the month is above £1,048 and below £4,189, so £600 at 8% = £48.
• Student loan: a normal month (£2,250) is under the £2,448.75 monthly threshold, so nothing. This month is £401.25 over it, and 9% of that is about £36.

£120 + £48 = £168 of tax and NI, and about £204 including the student loan: roughly 34% of the £600. Your year’s pay is £27,000 + £600 = £27,600, under the £29,385 Plan 2 yearly threshold, so the £36 or so can be reclaimed after 5 April 2027.

A heavy month on a cumulative code. Salary £48,000, so £4,000 a month. In April you are paid £1,000 of overtime, making £5,000. April’s share of the allowance is £1,047.50 (a twelfth of £12,570) and of the basic-rate band £3,141.67 (a twelfth of £37,700), so pay above about £4,189.17 is taxed at 40%. About £810.83 is, costing about £162 more than at 20%. Each later £4,000 month leaves about £189.17 of band unused, so deductions fall by up to about £38 a month until the excess is absorbed, in the fifth month after April. The year’s pay, £48,000 + £1,000 = £49,000, is under £50,270, so nothing is finally taxed at 40%. On an M1 code the same £162 or so would stay deducted until HMRC reconciled the year.

Related reading

• Bonus tax 2026/27 worked examples - the same rules applied to bonuses, including the 60% band.
• Hourly calculator - take-home pay from an hourly rate.
• How to read a PAYE coding notice - what your code means and how to get it corrected.