How income tax works in the UK (2026/27)

Income tax is the biggest deduction from most people’s pay. Understanding how it’s worked out makes your payslip easier to read and helps you see what a pay rise, bonus or pension contribution is really worth. This guide explains the rules for the current tax year using the official rates published by HMRC.

The tax year

Income tax is charged for each tax year, which runs from 6 April to 5 April the following year. The rates and thresholds are set by the government, usually announced in the Budget, and published on GOV.UK. If you’re an employee, your employer deducts the tax through PAYE (Pay As You Earn) each payday, using your tax code to spread your tax-free allowance across the year.

You can check the current figures on the official Income Tax rates and Personal Allowances page, and our guide to what’s changed this tax year lists every change from last year.

The Personal Allowance

Most people can earn a certain amount each year without paying any income tax. This is the Personal Allowance, and for the current year it is £12,570. It’s why the standard tax code is 1257L: the number is the allowance divided by ten.

The allowance isn’t the same for everyone:

• If your adjusted net income is over £100,000, you lose £1 of allowance for every £2 above that, so it disappears completely at £125,140. Our guide to the Personal Allowance taper trap explains what this means.
• Married couples and civil partners can transfer part of the allowance with Marriage Allowance.
• Blind Person’s Allowance adds £3,250 to your allowance if you qualify.
• HMRC may reduce your allowance in your tax code to collect tax on company benefits or other income.

Income tax bands

Income above your allowance is taxable income. It is taxed in bands, with a higher rate for each band. In England, Wales and Northern Ireland the bands for the current year are:

Assumes the standard Personal Allowance of £12,570. The allowance shrinks by £1 for every £2 of income over £100,000.

The key point is that each rate only applies to the slice of income inside that band. If your salary goes over the higher-rate threshold of £50,270, only the part above it is taxed at 40%; everything below is still taxed at the lower rates. Moving into a higher band never reduces your take-home pay.

Scotland sets its own income tax bands for wages and pensions, with more bands than the rest of the UK. See our guide to Scottish income tax for the full table.

How the bands are applied

Working out your income tax takes three steps:

1. Start with your taxable pay. For most employees this is salary plus any bonus and taxable benefits, minus pension contributions made under a net pay arrangement and anything you give up through salary sacrifice.
2. Take off your Personal Allowance to get your taxable income.
3. Fill each band in turn: the basic-rate band first, then the higher-rate band, then the additional-rate band. Multiply each slice by its rate and add them up.

Your employer does this in small steps every payday, using one-twelfth (monthly pay) or one fifty-second (weekly pay) of your allowance and of each band. Because PAYE keeps a running total for the year, the amount usually works out the same as doing the calculation once for the whole year.

Worked example: £40,000 salary

Here’s how income tax works out on a salary of £40,000 in the current year, with the standard tax code, no pension and no student loan:

Personal Allowance £12,570. Income tax: basic rate 20% on £27,430 = £5,486.00.

So on £40,000 you pay £5,486 income tax a year, or £457.17 a month. After £2,194 of National Insurance, your take-home pay is £32,320 a year, or £2,693.30 a month. You can see the full breakdown for common salaries on our salary after tax pages, or try your own figures in the take-home pay calculator.

Your marginal rate

Your marginal rate is the rate of tax you pay on your next pound of income. It matters when you’re deciding whether overtime, a pay rise or a pension contribution is worthwhile. On £40,000, you keep £72.00 of every extra £100 you earn, after income tax and National Insurance. On £60,000 you keep £58.00, and between £100,000 and £125,140 you keep only £38.00.

Your effective rate is different: it’s your total tax divided by your total pay. On £40,000 the effective rate of income tax plus National Insurance is 19.2%, much lower than the marginal rate, because the first part of your income is tax-free or taxed at the basic rate.

Reducing the income tax you pay

There are a few legitimate ways to pay less income tax:

• Pension contributions. Money paid into a workplace or personal pension gets tax relief. With salary sacrifice you also save National Insurance. See our guide to pension tax relief.
• Marriage Allowance, if one partner earns less than the Personal Allowance.
• Tax-free benefits such as some childcare schemes and work-related expenses, which you can claim tax relief on.
• Checking your tax code. If HMRC has used the wrong code you may be paying too much. Our guide to tax codes explains how to read yours, and HMRC’s check your Income Tax service shows what it has on record.

Wales and Northern Ireland

People who live in Wales pay Welsh rates of income tax, and their tax code starts with C. The Welsh Government can set its own rates, but they currently match those in England and Northern Ireland, so the table above applies. Northern Ireland uses the same rates and bands as England. Scotland is the only part of the UK with different bands.

Income tax and other income

This guide covers income tax on wages. Savings interest, dividends and rental income are taxed under related rules, with their own allowances and rates. If you have other income, it uses up your Personal Allowance and tax bands in a set order, which can push some of your income into a higher band. Dividends, for example, are taxed at their own rates of 10.75%, 35.75% and 39.35% once they’re above the dividend allowance of £500.