Overtime and bonus tax explained

There's no special 'bonus tax rate'

A common worry is that bonuses and overtime get taxed at some special, higher rate. They don't — there's no separate bonus tax band in the UK system. A bonus or overtime payment is simply added to your normal pay and taxed through the same Income Tax bands and National Insurance thresholds as the rest of your income for the year. What can make a bonus payslip look brutal is how PAYE spreads your annual Personal Allowance and tax bands evenly across the year's pay periods — a large one-off payment in a single month can temporarily look like it's being taxed harshly, even though the year-end total works out exactly the same as if the same money had arrived as regular pay.

A worked example where the timing evens out

Take someone on a £35,000 base salary who receives a £5,000 bonus partway through the year, taking their total annual income to £40,000. Because £40,000 stays entirely within the basic-rate band (below £50,270), the bonus is taxed at exactly 20% — the same marginal rate as the rest of their income. Comparing the full tax year with and without the bonus: tax on £35,000 alone is £4,486 (20% of the £22,430 above the Personal Allowance); tax on £40,000 is £5,486 (20% of £27,430). The difference — exactly £1,000 — is exactly 20% of the £5,000 bonus. There's no hidden extra cost here, even if the specific payslip the bonus landed on looked unusually large in the tax column that month.

A worked example where the rate genuinely does change

Now take someone on a £48,000 base salary who gets a £5,000 bonus, taking their annual income to £53,000 — crossing the £50,270 higher-rate threshold. Without the bonus, their taxable income of £35,430 sits entirely in the 20% band, giving £7,086 of tax. With the bonus, taxable income of £40,430 splits across bands: £37,700 at 20% (£7,540) and the remaining £2,730 at 40% (£1,092), totalling £8,632. The bonus added £1,546 of tax on £5,000 — an average of just under 31%, because £2,270 of it stayed in the basic-rate band while the remaining £2,730 spilled into the 40% band. This is a genuine change in tax owed, caused by the bonus itself pushing total income higher — not a PAYE quirk.

National Insurance applies too

Bonuses and overtime also attract National Insurance in exactly the same way as regular pay — 8% on the portion of your combined annual earnings between £12,570 and £50,270, and 2% above that. There's no NI-free treatment for a bonus, and a large bonus crossing the £50,270 line will see the excess charged at the lower 2% NI rate even as it moves into the 40% Income Tax band — the two taxes partly offset each other right at that threshold.

Overtime that's genuinely a different arrangement

Regular, contracted overtime — the kind built into a fixed rota or shift pattern — is simply taxed as part of normal pay, with no special treatment at all. Where it gets more interesting is genuinely irregular overtime, where a worker's total pay varies significantly from one period to the next. PAYE still handles this correctly on a cumulative basis over the year, but it's worth keeping an eye on your year-to-date figures if your hours fluctuate a lot, since a few unusually high-overtime months can temporarily look like you're paying a disproportionate amount of tax, even though the full tax year will balance out correctly in the end.

Common mistakes

• Assuming a heavily-taxed bonus payslip means an error — check whether your year-end total income actually crosses a tax band threshold before assuming something's wrong; often it's just PAYE timing that self-corrects.
• Forgetting a bonus counts towards adjusted net income — a bonus can tip someone over the £100,000 Personal Allowance taper or the £60,000 Child Benefit threshold even if their regular salary alone wouldn't.
• Not considering bonus sacrifice — some employers allow a bonus to be paid into a pension instead of as cash, through salary sacrifice, which avoids Income Tax and NI on the sacrificed amount entirely, arranged before the bonus is paid.
• Assuming overtime is always paid at an enhanced rate — there's no legal requirement for a premium rate on overtime; it depends entirely on your employment contract.
• Leaving a job shortly after a heavily-taxed bonus month without checking for a refund — if your income for the rest of the tax year doesn't continue at the bonus month's level, you may be owed money back; see our guide on claiming a tax refund from HMRC.