Income tax is the UK government's tax on earnings and income — from employment, self-employment, pensions, rental income, some savings interest, and dividends above the annual allowance. It is collected by HMRC (His Majesty's Revenue and Customs) and funds public services including health, education and defence.
For most employees it is deducted automatically by employers through the PAYE (Pay As You Earn) system — you never handle it directly. The self-employed, company directors, and those with complex affairs pay via Self Assessment, filing an annual tax return. Some people fall into both: employed but also needing to file Self Assessment for additional income sources.
Crucially, income tax is not applied to your entire income. The first £12,570 is tax-free — your personal allowance. You only pay tax on income above that threshold, and each rate applies only to the slice of income within its band.
The 2026/27 tax year runs from 6 April 2026 to 5 April 2027. Scotland sets its own income tax rates through the Scottish Parliament; the rest of the UK uses Westminster rates.
See your income tax, National Insurance and net pay broken down by month and year — for any UK salary in 2026/27.
Take-Home Pay Calculator →There are four income tax bands in England, Wales and Northern Ireland. The personal allowance has been frozen at £12,570 since 2021/22 and is set to remain at this level through 2027/28 — a policy known as fiscal drag that pushes more earners into higher bands over time.
| Band | Taxable Income | Rate | Tax on Band |
|---|---|---|---|
| Personal Allowance | Up to £12,570 | 0% | £0 |
| Basic Rate | £12,571 – £50,270 | 20% | Up to £7,540 |
| Higher Rate | £50,271 – £125,140 | 40% | Up to £29,948 |
| Additional Rate | Above £125,140 | 45% | On amount above |
The higher rate threshold of £50,270 is the personal allowance (£12,570) plus the basic rate band width (£37,700). The additional rate threshold of £125,140 is also the point at which the personal allowance is fully withdrawn for high earners — see the £100k taper section.
Scottish taxpayers pay income tax at rates set by the Scottish Parliament, not Westminster. Scotland has six bands — more granular than the rest of the UK — and the higher rate kicks in at a lower threshold.
Scottish rates apply to non-savings, non-dividend income only (employment income, self-employment profits, rental income, pensions). Savings interest and dividends are still taxed at UK-wide rates for Scottish taxpayers.
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Starter Rate | £12,571 – £15,397 | 19% |
| Basic Rate | £15,398 – £27,491 | 20% |
| Intermediate Rate | £27,492 – £43,662 | 21% |
| Higher Rate | £43,663 – £75,000 | 42% |
| Advanced Rate | £75,001 – £125,140 | 45% |
| Top Rate | Above £125,140 | 48% |
The practical difference is significant for mid-range earners. On a £50,000 salary, a Scottish taxpayer pays roughly £1,500 more income tax than an equivalent English taxpayer, because the higher rate begins at £43,663 vs £50,271. However, National Insurance is set by Westminster and is identical across the UK.
A persistent misconception: earning more and crossing into a higher band does not mean your entire salary is suddenly taxed at that rate. Income tax is marginal — each rate applies only to the slice of income within its band.
Think of it as filling buckets. The first £12,570 goes into the 0% bucket (your personal allowance — tax free). The next £37,700 goes into the 20% bucket. Only income above £50,270 goes into the 40% bucket. Moving from £50,000 to £51,000 costs you £400 in extra tax — not £20,400.
This distinction matters because it affects decisions about bonuses, pay rises, and pension contributions. Getting a £5,000 raise that crosses the higher rate threshold does not suddenly make your existing income more expensive — only that additional £5,000 (minus the amount already at basic rate) faces the higher rate.
| Gross Salary | Income Tax (E/W/NI) | Effective Rate | Marginal Band |
|---|---|---|---|
| £20,000 | £1,486 | 7.4% | Basic (20%) |
| £35,000 | £4,486 | 12.8% | Basic (20%) |
| £50,270 | £7,540 | 15.0% | Basic — top of band |
| £60,000 | £11,432 | 19.1% | Higher (40%) |
| £75,000 | £17,432 | 23.2% | Higher (40%) |
| £100,000 | £27,432 | 27.4% | Higher (40%) — taper starts |
| £125,140 | £42,516 | 34.0% | Additional (45%) — taper ends |
| £150,000 | £54,766 | 36.5% | Additional (45%) |
Note: figures are income tax only, before National Insurance. For a full take-home pay breakdown, use the income tax calculator.
Not everything you receive is subject to income tax. The table below covers the most common income types.
| Income Type | Taxable? | Notes |
|---|---|---|
| Employment salary and wages | Yes | Deducted via PAYE before you receive it |
| Self-employment profits | Yes | Profit after allowable expenses; reported via Self Assessment |
| State Pension | Yes | Counts as income; may still be within PA if it is your only income |
| Private and workplace pension | Yes | Taxed as income; 25% of the pot can be taken tax-free at retirement |
| Rental income | Yes | After allowable expenses; first £1,000 covered by property allowance |
| Savings interest | Yes (above allowance) | First £1,000 (basic rate) or £500 (higher rate) is tax-free via PSA |
| Dividends | Yes (above allowance) | £500 dividend allowance; above that: 8.75% / 33.75% / 39.35% |
| ISA interest and gains | No | All income and growth inside an ISA is tax-free |
| Premium Bond prizes | No | Exempt from income tax and CGT |
| Child Benefit | Effectively no (usually) | High earners above £60,000 may face the High Income Child Benefit Charge via SA |
| Redundancy pay (first £30,000) | No | The first £30,000 of redundancy is tax-free; amounts above are taxable |
| Gift Aid donations | Reduces taxable income | Higher-rate taxpayers can claim back the difference between basic and higher rate through SA |
PAYE (Pay As You Earn) is the mechanism by which employers deduct income tax and National Insurance from employees' wages before paying them. Around 80% of UK taxpayers are assessed solely through PAYE and never need to file a tax return.
Your employer uses your tax code to calculate how much to deduct each pay period. PAYE spreads your annual allowance evenly across the year — so if you are paid monthly, one twelfth of your personal allowance applies each month. If your tax code is wrong or your income changes mid-year, HMRC will reconcile any underpayment or overpayment at the end of the tax year.
See the full guide: PAYE Explained — How Your Tax Is Calculated Each Pay Period
Self Assessment is HMRC's system for collecting tax from people whose tax affairs cannot be handled entirely through PAYE. You need to file a Self Assessment return if any of the following apply:
Deadline: Online Self Assessment returns must be filed by 31 January following the end of the tax year. Any tax owed must also be paid by 31 January. Payments on Account (advance payments towards the next year's bill) are split: 50% on 31 January and 50% on 31 July.
Self-employed people pay income tax on their net profits — revenue minus allowable business expenses. They also pay Class 4 National Insurance on the same profit figure. For a full breakdown, use the self-employed tax calculator.
Income tax and National Insurance (NI) are two separate charges that appear on the same payslip and are often conflated. Understanding both is essential to knowing your real take-home pay — the combined rate is often higher than people realise.
Income tax: (£35,000 − £12,570) × 20% = £22,430 × 20% = £4,486
National Insurance: (£35,000 − £12,570) × 8% = £22,430 × 8% = £1,794
Total deductions: £6,280/year — effective combined rate: 17.9% of gross
Monthly take-home (approx.): £35,000 − £6,280 = £28,720 ÷ 12 = ~£2,393/month
For an exact figure including all deductions: Take-Home Pay Calculator · Salary Guide
Your tax code tells your employer how much income to treat as tax-free before applying PAYE deductions. It is issued by HMRC and updated whenever your circumstances change — a new benefit in kind, an underpayment from a previous year, or a change in the personal allowance level.
The most common format is a number followed by a letter. The number is your tax-free amount divided by 10. 1257L means you have a personal allowance of £12,570 (1257 × 10) and the L indicates the standard personal allowance applies.
| Tax Code | What it means | Common reason |
|---|---|---|
| 1257L | Standard personal allowance (£12,570) | Default for most UK employees in 2026/27 |
| BR | All income taxed at basic rate (20%) — no PA | Second job or pension; PA already used against another source |
| D0 | All income taxed at higher rate (40%) | Second income source; whole income to be taxed at 40% |
| D1 | All income taxed at additional rate (45%) | Additional income above £125,140 |
| NT | No tax deducted | Working abroad; certain exempt categories |
| K code (e.g. K500) | Negative allowance — extra tax due | Taxable benefit (company car, private medical) exceeds PA |
| W1 / M1 | Emergency code (week 1 / month 1 basis) | New employment; HMRC hasn't yet confirmed income history |
| S prefix (e.g. S1257L) | Scottish taxpayer — Scottish rates apply | Main residence in Scotland |
If your tax code looks wrong — for example if you have moved jobs and are still on an emergency code, or if a benefit in kind has been incorrectly included — contact HMRC online or via your Personal Tax Account. Incorrect codes frequently cause overpayments that are reclaimed at year end but reduce your monthly cash flow unnecessarily.
Full guide: Tax Codes Explained — How to Check and Change Yours
For incomes above £100,000, the personal allowance is progressively withdrawn at a rate of £1 for every £2 of income above £100,000. At £125,140, the allowance is fully gone. This creates an effective marginal rate of 60% within that range — the highest marginal rate in the UK tax system.
| Gross Income | Personal Allowance Remaining | Effective Marginal Rate |
|---|---|---|
| £100,000 | £12,570 (full) | 40% — taper starts at £100,001 |
| £105,000 | £10,070 | 60% on this income band |
| £110,000 | £7,570 | 60% on this income band |
| £115,000 | £5,070 | 60% on this income band |
| £120,000 | £2,570 | 60% on this income band |
| £125,140 | £0 — fully withdrawn | 60% on this income band |
| £130,000 | £0 | 45% additional rate (taper complete) |
The 60% trap in practice: A salary of £101,000 is taxed more punitively (as a percentage) than £99,000. A £10,000 pay rise from £100,000 to £110,000 produces only £4,000 extra take-home pay — because the marginal rate is 60%. Making a pension contribution to bring adjusted net income below £100,000 removes the trap entirely. A £15,000 pension contribution from a £115,000 income: saves 40% × £15,000 = £6,000 in higher-rate relief, plus restores £7,500 of personal allowance, saving a further £3,000 in tax = £9,000 total saving on a £15,000 contribution.
Adjusted net income is your total taxable income minus gross pension contributions and Gift Aid donations. HMRC uses adjusted net income — not gross salary — when calculating the taper, which is why pension contributions are such an effective remedy.
Personal allowance: £12,570 → 0% tax
Taxable income: £35,000 − £12,570 = £22,430 at 20% → Tax: £4,486
National Insurance: £22,430 × 8% → NI: £1,794
Total deductions: £6,280 | Effective combined rate: 17.9%
Monthly take-home (approx.): ~£2,393
Personal allowance: £12,570 → 0% tax
Basic rate band: £37,700 at 20% → Tax: £7,540
Higher rate slice: (£60,000 − £50,270) = £9,730 at 40% → Tax: £3,892
Total income tax: £11,432 | Effective income tax rate: 19.1%
National Insurance: (£37,700 × 8%) + (£9,730 × 2%) = £3,016 + £195 = £3,211
Combined deductions: £14,643 | Monthly take-home (approx.): ~£3,780
Gross income: £105,000 — personal allowance reduced to £10,070 (£12,570 − £2,500)
Basic rate band: £37,700 at 20% → Tax: £7,540
Higher rate band: (£105,000 − £37,700 − £10,070) = £57,230 at 40% → Tax: £22,892
Total income tax: £30,432 | Effective rate: 29.0%
Comparison: On the extra £5,000 earned above £100,000, income tax cost was £3,000 (60% effective rate). After making a £5,000 pension contribution, full personal allowance is restored and marginal cost of that £5,000 is £2,000 — saving £1,000 in tax.
Net profit after allowable expenses: £42,000
Income tax: (£42,000 − £12,570) = £29,430 at 20% → Tax: £5,886
Class 4 NI: £29,430 at 6% → NI: £1,766
Total tax and NI: £7,652 | Effective combined rate: 18.2%
Key point: Self-employed people do not pay employer's NI (13.8%) on their own income — one reason contracting can be more tax-efficient than employment at the same gross. But they lose employer pension contributions and statutory protections.
Use the self-employed tax calculator to model different profit levels.
England, Wales, NI: £50,000 salary → taxable income £37,430 → all at 20% → income tax: £7,486
Scotland: £50,000 salary
Difference: £1,528 more income tax in Scotland on the same £50,000 salary.
National Insurance is identical in both cases (NI is UK-wide, not devolved).
Use our income tax calculator for a detailed breakdown of 2026/27 tax and take-home pay.
Income Tax Calculator →Contributions made via salary sacrifice reduce your gross taxable pay before income tax and NI are calculated. A basic-rate taxpayer saves 28p per £1 contributed (20% income tax + 8% NI). A higher-rate taxpayer saves 42p per £1 (40% + 2%). This is the most tax-efficient way to contribute to a pension for most employees.
If you contribute to a personal pension directly (not via salary sacrifice), HMRC adds basic-rate relief automatically. Higher-rate taxpayers must claim the additional 20% relief through Self Assessment. The pension must be a registered scheme — workplace pensions qualify, as do most SIPP providers.
If you earn between £100,000 and £125,140, pension contributions or Gift Aid donations can bring your adjusted net income below £100,000, restoring your personal allowance and eliminating the 60% marginal rate. This can generate effective tax relief of 60%+ on the contribution amount.
Up to £20,000 per year can be saved in an ISA. All income and gains inside an ISA are tax-free indefinitely — interest, dividends and capital gains are all exempt. This does not reduce your current income tax bill, but shelters future returns from tax compounding over time.
If one partner earns below the personal allowance (£12,570), they can transfer £1,260 of their unused allowance to a basic-rate taxpayer spouse or civil partner, saving up to £252/year. The transfer is applied via PAYE or Self Assessment. It cannot be used if either partner is a higher-rate taxpayer.
When you donate to charity under Gift Aid, the charity reclaims basic-rate tax from HMRC on top of your donation. Higher-rate taxpayers can claim the difference between basic and higher rate through Self Assessment, reducing their adjusted net income. A £1,000 donation under Gift Aid effectively costs a 40% taxpayer only £600.
Related: National Insurance Explained · Tax Codes Explained · PAYE Explained · Fiscal Drag Explained · UK Tax Hub