"I turned down the overtime because it would push me into the higher tax bracket and I'd end up worse off." It's one of the most common pieces of workplace folklore in the UK, and it's wrong. Crossing into a higher tax band never means you take home less than you would have without the overtime. Here's the actual maths.
For your own full tax breakdown, see our take-home pay calculator.
Why the Myth Persists
The confusion comes from imagining tax bands work like a light switch, cross the threshold and everything gets taxed at the new, higher rate. They don't. Only the portion of income that actually falls above the threshold is taxed at the higher rate, everything below it keeps being taxed exactly as it was before. We cover this in full in our PAYE and Income Tax explained guide, but it's worth seeing it applied specifically to overtime, since that's where the anxiety usually shows up.
The Worked Example
Say your regular salary is £49,500, just under the £50,270 higher-rate threshold, and you take on enough overtime across the year to earn an extra £2,000, taking your total to £51,500.
Of that £2,000, £770 falls in the remaining basic-rate space below the threshold and is taxed at 20%. Only the last £1,230 crosses into the higher-rate band and is taxed at 40%. Add National Insurance on top, and the total deducted from that £2,000 comes to £732.20, an overall effective rate of 36.6%. You keep £1,267.80 of it, nearly two-thirds.
| Amount | |
|---|---|
| Overtime earned | £2,000 |
| Extra Income Tax | £646.00 |
| Extra National Insurance | £86.20 |
| Net overtime kept | £1,267.80 |
Nowhere in that calculation does your original £49,500 get taxed any differently. It's exactly as it was. The higher rate only ever applies to the slice of income that's actually above the threshold, never retroactively to everything below it.
When It's Genuinely Worth Being Careful
There are two real situations where the marginal cost of extra income is high enough to actually plan around, and both are worth flagging honestly rather than pretending overtime is always straightforward.
If your income is already approaching £100,000, extra overtime can push you into the Personal Allowance taper zone, where the effective marginal rate reaches 60%, not 40%. It's still not a losing proposition, you still keep 40p of every pound, but the jump from 32-36% effective rates to 60% is large enough to genuinely factor into a decision. Our 60% tax trap guide covers this in full.
If you have a student loan, repayments are calculated on top of tax and National Insurance, adding another 9% (6% for Postgraduate loans) to whatever your marginal rate already is. It doesn't change the basic principle, you still come out ahead, but it does mean a smaller slice of each extra pound makes it into your pocket.
Common Mistakes
The biggest one is declining overtime specifically to "avoid the higher tax bracket," which almost always leaves you with less money overall than simply taking the extra pay and letting the maths work itself out. Even inside the 40% band, and even accounting for National Insurance, the large majority of what you earn from overtime stays yours.
Ask your employer: If overtime is paid at a different rate or structured as time off in lieu instead of cash, ask payroll how it's treated for tax and pension purposes specifically, since the two aren't always calculated the same way, and it's worth knowing which applies before deciding whether to take the shift.