Guides 8 min read
UK Income Tax Explained — Bands, Allowances & Deductions
Understanding how your salary is taxed in the UK can save you money and prevent surprises when you check your payslip. This guide walks through every deduction between gross pay and what lands in your bank account.
How UK income tax works
The UK uses a progressive tax system: you pay different rates on different portions of your income. Everyone receives a tax-free Personal Allowance (£12,570 for 2025/26) before any tax is charged. Income above the allowance falls into the basic-rate band (20%), higher-rate band (40%) and additional-rate band (45%).
Tax is collected at source through PAYE (Pay As You Earn). Your employer calculates the correct deduction each pay period using your tax code, which HMRC issues based on your circumstances.
Personal Allowance and the taper
The standard Personal Allowance for 2025/26 is £12,570. This is the amount you can earn before paying any income tax. However, if your adjusted net income exceeds £100,000, the allowance reduces by £1 for every £2 above the threshold, reaching zero at £125,140.
This creates an effective 60% marginal tax rate between £100,000 and £125,140: for every £1 earned, you lose 50p of allowance (taxed at 40%) plus pay 40% on the £1 itself. Understanding this can inform pension contribution decisions.
Tax bands for 2025/26
For England, Wales and Northern Ireland:
- Personal Allowance: £0–£12,570 — 0%
- Basic rate: £12,571–£50,270 — 20%
- Higher rate: £50,271–£125,140 — 40%
- Additional rate: over £125,140 — 45%
Scotland has its own bands: starter (19%), basic (20%), intermediate (21%), higher (42%) and advanced/top (45%/48%). Use the calculator and select "Scotland" to see the difference.
National Insurance contributions
Employees pay Class 1 NI on earnings above the Primary Threshold (£12,570 for 2025/26). The main rate is 8% on earnings between £12,570 and £50,270, then 2% on earnings above that.
NI is calculated per pay period (not cumulatively like income tax), so you cannot carry forward unused thresholds. Employer NI is 13.8% above the Secondary Threshold — this affects total employment cost but not your take-home pay.
Student loan repayments
Repayments are made through PAYE once you earn above the plan threshold:
- Plan 1 (pre-2012 England/Wales, all Scotland/NI): 9% above £24,990
- Plan 2 (post-2012 England/Wales): 9% above £27,295
- Plan 4 (Scotland post-2012): 9% above £27,660
- Plan 5 (post-2023): 9% above £25,000
- Postgraduate Loan: 6% above £21,000
These are deducted after tax and NI but appear on your payslip. They are not technically taxes but reduce take-home pay in the same way.
Pension tax relief
Workplace pension contributions receive tax relief at your marginal rate. Under "net pay" arrangements (most defined-benefit and many auto-enrolment schemes), your contribution is deducted from gross pay before tax — so relief is automatic.
Under "relief at source" arrangements, you contribute from net pay and the pension provider reclaims basic-rate tax (20%) from HMRC. Higher and additional-rate taxpayers must claim the extra via Self Assessment.
Using the take-home pay calculator
Enter your gross annual salary, select your region, tax year and any applicable deductions (pension, student loan, blind person's allowance). The tool applies all rules described above and shows a month-by-month net pay breakdown.
Try different scenarios — for example, increasing your pension contribution above £100,000 income to reclaim your Personal Allowance.
Frequently asked questions
Do I pay tax on my first £12,570?
No. The Personal Allowance means the first £12,570 of income is tax-free for most people. Only income above this threshold is taxed.
What is a tax code and why does it matter?
Your tax code (e.g. 1257L) tells your employer how much tax-free pay to give you. A wrong code means you overpay or underpay tax. Check it on your payslip or via your Personal Tax Account.
Can I reduce my tax bill legally?
Yes. Pension contributions, salary sacrifice, charitable donations (Gift Aid), and using your full ISA allowance are all legitimate ways to reduce income tax.
When does the 60% trap apply?
Between £100,000 and £125,140 adjusted net income. Each extra £1 earned costs 60p in effective tax due to the Personal Allowance taper.