How Income Tax Works in the UK

UK income tax is a progressive tax on employment income, self-employment profits, pension income and other earnings above the personal allowance. Most employees pay through PAYE (Pay As You Earn) — tax is deducted automatically by the employer before salary is paid. Understanding the rates, thresholds and National Insurance gives you an accurate picture of your true take-home pay.

uk income-tax paye tax-brackets national-insurance personal-allowance

Quick reference — UK 2025/26

Personal allowance

12.570

No income tax on earnings up to this amount

Basic rate

20%

12.571 to 50.270

Higher rate

40%

50.271 to 125.140

Additional rate

45%

Above 125.140

The personal allowance and how it works

The personal allowance is the amount of income you can earn each tax year without paying any income tax. For 2025/26 it is 12.570. This amount is deducted from your gross income before applying any tax rates. If you earn below 12.570, you pay no income tax.

The personal allowance is tapered away for higher earners. For every 2 of income above 100.000, you lose 1 of personal allowance. At 125.140, the personal allowance is completely eliminated. This taper creates an effective marginal tax rate of 60% on income between 100.000 and 125.140 — one of the highest effective rates in the UK system.

Some taxpayers have a reduced personal allowance. If your income is between 100.000 and 125.140, your allowance is reduced. If you are a non-UK resident, different rules may apply. Marriage allowance allows one partner to transfer 1.260 of their allowance to the other if one earns below 12.570 — saving up to 252 in tax.

The personal allowance applies to the first slice of income in the tax calculation. The tax rates then apply progressively to the income above 12.570.

UK income tax calculation

Formula

\text{Tax} = (\text{Basic rate income} \times 20\%) + (\text{Higher rate income} \times 40\%) + (\text{Additional rate income} \times 45\%)

Subtract the personal allowance from gross income to get taxable income. Apply 20% to income up to the basic rate limit. Apply 40% to income between the basic and higher rate limits. Apply 45% to any income above the additional rate threshold. Sum all three for total income tax.

Basic rate incomeTaxable income between 0 and 37.700 (the 20% band width above the personal allowance)

Higher rate incomeTaxable income between 37.701 and 112.570 (the 40% band)

Additional rate incomeTaxable income above 112.570 (the 45% band — equivalent to gross income above 125.140)

National Insurance contributions

National Insurance (NI) is a separate tax on employment income. For employees (Class 1), the rates for 2025/26 are: 8% on earnings between 12.570 and 50.270 per year (the primary threshold and upper earnings limit), and 2% on earnings above 50.270.

Employers also pay NI at 13,8% on employees' earnings above 9.100 (the secondary threshold) — this is a cost of employment to the employer and does not appear on the employee's payslip, but it means the total employment cost to the employer is significantly higher than the gross salary.

Self-employed workers pay Class 4 NI: 6% on profits between 12.570 and 50.270, and 2% above 50.270. Class 2 NI is a flat weekly payment but from 2024 it is only due if profits exceed 12.570.

Combining income tax and NI gives the total marginal rate at different income levels. In the basic rate band (income between 12.570 and 50.270): 20% income tax plus 8% NI = 28% combined. In the higher rate band (income between 50.270 and 100.000): 40% income tax plus 2% NI = 42% combined. In the personal allowance taper band (100.000 to 125.140): 60% effective income tax plus 2% NI = 62% combined.

Worked examples

Example 1Standard employee — 45.000 gross salary

Given: Gross salary: 45.000 | Tax year: 2025/26 | Employee only

Result: Income tax: 6.486 | National Insurance: 2.594 | Take-home: 35.920 | Effective combined rate: 20,2%

Taxable income: 45.000 - 12.570 = 32.430. All within basic rate band. Income tax: 32.430 x 20% = 6.486. NI: (45.000 - 12.570) x 8% = 32.430 x 8% = 2.594. Total deductions: 9.080. Take-home: 45.000 - 9.080 = 35.920. Monthly: 2.993. Effective combined rate: 9.080 / 45.000 = 20,2%.

Example 2Higher rate taxpayer — 70.000 gross salary

Given: Gross salary: 70.000 | Tax year: 2025/26

Result: Income tax: 15.432 | NI: 3.354 | Take-home: 51.214 | Effective combined rate: 26,8%

Taxable income: 70.000 - 12.570 = 57.430. Basic rate: 37.700 x 20% = 7.540. Higher rate: (57.430 - 37.700) x 40% = 19.730 x 40% = 7.892. Total income tax: 15.432. NI: (50.270 - 12.570) x 8% + (70.000 - 50.270) x 2% = 37.700 x 8% + 19.730 x 2% = 3.016 + 395 = 3.411. Take-home: 70.000 - 15.432 - 3.411 = 51.157. Effective rate: 18.843 / 70.000 = 26,9%.

Example 3The 100k trap — 110.000 salary

Given: Gross salary: 110.000 | Personal allowance taper applies

Result: Reduced personal allowance: 7.570 | Effective marginal rate on 100k-125k income: 60% | Income tax: ~40.200

Personal allowance reduction: (110.000 - 100.000) / 2 = 5.000. Remaining allowance: 12.570 - 5.000 = 7.570. Taxable income: 110.000 - 7.570 = 102.430. Basic rate: 37.700 x 20% = 7.540. Higher rate: (102.430 - 37.700) x 40% = 64.730 x 40% = 25.892. Total income tax: 33.432. Plus NI approximately 4.225. Take-home: approximately 72.343. An extra 1.000 earned between 100.000 and 125.140 costs 600 in income tax — the 60% effective marginal rate.

UK Income Tax Calculator

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UK income tax and NI by salary — 2025/26

Gross Salary	Income Tax	Employee NI	Total Deductions	Take-Home	Effective Rate
20.000	1.486	598	2.084	17.916	10,4%
30.000	3.486	1.398	4.884	25.116	16,3%
40.000	5.486	2.198	7.684	32.316	19,2%
50.000	7.486	2.954	10.440	39.560	20,9%
60.000	11.432	3.154	14.586	45.414	24,3%
80.000	19.432	3.554	22.986	57.014	28,7%
100.000	27.432	3.954	31.386	68.614	31,4%

Common mistakes with UK income tax

✗ Not making pension contributions to reduce income through the 100k trap

✓ Pension contributions reduce adjusted net income for the purpose of the personal allowance taper. If you earn 110.000, contributing 10.000 to a pension reduces adjusted income to 100.000, fully restoring the personal allowance. This saves 5.000 of allowance x 40% = 2.000 in tax — plus the pension contribution itself receives 40% tax relief. The effective cost of a 10.000 pension contribution in this income range is approximately 4.000 after tax.

✗ Assuming income tax and NI are the only employment taxes

✓ Employer NI at 13,8% on salary above 9.100 is an additional cost of employment paid by the employer. It does not appear on your payslip but it means the employer pays significantly more than your gross salary to employ you. At a 50.000 salary, the employer pays approximately 5.650 in employer NI on top of the gross salary — total cost to employer: approximately 55.650. This matters when negotiating salary, understanding the true cost of employment, or comparing employment to contracting.

✗ Not claiming tax reliefs available through self-assessment

✓ Many employees do not file a self-assessment return and miss reliefs available only through that process: gift aid higher-rate relief, work from home allowance, professional subscriptions, work-related expenses, and marriage allowance. Check whether any reliefs apply to your situation — HMRC will not proactively identify missed reliefs. The deadline for online self-assessment is 31 January following the end of the tax year.

Methodology

Income tax calculated using 2025/26 rates and thresholds: personal allowance 12.570, basic rate 20% up to 50.270, higher rate 40% up to 125.140, additional rate 45% above. National Insurance using 2025/26 employee rates: 8% between primary threshold and upper earnings limit, 2% above. Personal allowance taper applied at 1 reduction per 2 of income above 100.000.

Tax rates and thresholds for 2025/26 are based on government announcements. Scotland has separate income tax rates set by the Scottish Parliament that differ from the rest of the UK. Welsh rates are currently aligned with England and Northern Ireland. Always verify current rates at gov.uk/income-tax-rates.

Cite this guide

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https://calquify.com/guides/how-income-tax-works-uk

Last updated: May 2026

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Frequently asked questions

What is the UK tax year?

The UK tax year runs from 6 April to 5 April the following year. The 2025/26 tax year runs from 6 April 2025 to 5 April 2026. This unusual start date originates from a calendar reform in 1752 when Britain adopted the Gregorian calendar — the tax year that had started on 25 March (Lady Day) was shifted forward by 11 days, landing on 5 April, and has remained there since.

Do I need to file a UK tax return?

Most UK employees do not need to file a self-assessment tax return because PAYE handles their tax automatically. You must file a self-assessment return if you are self-employed with income above 1.000, receive rental income, earn above 100.000, receive untaxed income, or are a company director. HMRC will notify you if you need to file. The deadline for online returns is 31 January; for paper returns it is 31 October, both following the end of the tax year.

How does the higher rate 40% threshold work?

The 40% higher rate applies to income above 50.270 (the personal allowance plus the 37.700 basic rate band). However, if you make pension contributions that are included in your workplace pension through salary sacrifice, these reduce your gross income before the tax calculation — potentially keeping more income in the 20% band. Similarly, gift aid donations extend the basic rate band — for every 1 donated to charity, the basic rate band increases by 1,25 (the grossed-up amount), providing 40% relief to higher rate taxpayers.

Sources & References

› HMRC — Income Tax rates and Personal Allowances 2025/26 Retrieved 2026-05-20

› HMRC — National Insurance rates and categories Retrieved 2026-05-20

Formula based on standard mathematical and financial methods. Results are for informational purposes. Last reviewed May 2026. Version 1.