How income tax works in the UK

For 2026/27, UK income tax is charged in slices. The first £12,570 of most people’s income is tax-free, the next £37,700 is taxed at 20%, income from £50,271 to £125,140 at 40%, and anything above that at 45%. Your employer takes the tax from each pay packet through PAYE (Pay As You Earn), using the tax code HMRC supplies. Scotland sets its own rates on wages, so the figures there differ.

The bands for 2026/27

These rates apply to earnings, pensions and most other income in England, Wales and Northern Ireland. Savings and dividends have separate rules. The tax year runs from 6 April 2026 to 5 April 2027.

Band	Taxable income (gross, with the standard allowance)	Rate
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £125,140	40%
Additional rate	Over £125,140	45%

Wales has its own Welsh rates of income tax, but for 2026/27 the Welsh Government kept them at a level that gives Welsh taxpayers exactly the same totals as England. The only visible difference is a C at the front of the tax code, which is explained in our guide to Welsh C tax codes.

Scotland uses six bands from 19% to 48%, covered in Scottish S tax codes and rates.

Why the slices matter

Each rate applies only to the income inside its band. Moving from £50,000 to £51,000 does not drag your whole salary into the 40% band; only the £730 above £50,270 is taxed at 40%. Some people turn down overtime or a promotion for fear of “going into a higher bracket” and losing money, but on income tax alone that cannot happen.

One zone is awkward. Between £100,000 and £125,140 your Personal Allowance is withdrawn at £1 for every £2 of income, so the effective rate on that slice is much higher than 40%. The personal allowance guide shows how that works.

A worked example

Say you are an NHS band 5 nurse in England on the entry point of £32,073, with no other income and the standard 1257L code.

• Tax-free: the first £12,570.
• Taxed at 20%: £32,073 minus £12,570 = £19,503.
• Income tax for the year: £19,503 × 20% = £3,900.60, or about £325 a month.

Now take a band 7 post at the top point of £56,515.

• £37,700 taxed at 20% = £7,540.
• £56,515 minus £50,270 = £6,245 taxed at 40% = £2,498.
• Income tax for the year: £10,038.

Pension contributions change these figures. NHS, teachers’, local government and Civil Service pensions are normally taken before tax, which makes your taxable pay lower than your salary. The examples leave pensions out to keep the arithmetic clear. The take-home pay calculator adds National Insurance and pension for a full picture.

How PAYE collects it

Your employer’s payroll software applies your tax code to each payment. A code such as 1257L tells it how much tax-free pay to give you, here £12,570 spread across the year (£1,048 a month or £242 a week). The software then charges 20% and 40% on the rest.

PAYE is normally cumulative. On each payday the system compares your total pay since 6 April with the total tax already paid and works out what is due to date. A low month earlier in the year leaves unused tax-free amount that carries forward, so you pay less later. A W1, M1 or X after the code means the calculation looks only at the current period. That is an emergency basis and often means overpaying; see emergency tax codes.

With two jobs, only one normally gets the Personal Allowance. The second usually has a BR code, so all of its pay is taxed at 20%. The BR tax code guide covers what to do when that is wrong.

Income that is taxed differently

Wages and pensions are “non-savings, non-dividend income” and use the bands above. Other income has its own rules:

• Savings interest: a starting rate of 0% on up to £5,000 is available in full if your other taxable income is under £17,570. On top of that, the Personal Savings Allowance is £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and nothing for additional-rate taxpayers.
• Dividends: the first £500 is tax-free. After that, 2026/27 rates are 10.75% in the basic band, 35.75% in the higher band and 39.35% in the additional band.

Savings and dividends use UK rates even if you live in Scotland. From 6 April 2027 the savings rates rise to 22%, 42% and 47%, but that change does not apply this tax year.

Thresholds are frozen

The Personal Allowance (£12,570), the basic rate limit (£37,700) and the higher rate threshold (£50,270) are frozen until 5 April 2031. As pay awards lift salaries, more of each pound ends up in the taxed bands and more people cross into the 40% band. A band 7 NHS post already crosses it at the top point, and so does the top of the upper pay range for teachers in England outside London (£52,835 from September 2026).

Other deductions on your payslip

Income tax is one line among several. National Insurance is charged separately at 8% between £12,570 and £50,270 and 2% above that, and student loan repayments come off once you pass your plan’s threshold. These are covered in National Insurance explained and in our student loan guides.

If you think you have paid the wrong amount, check your tax code first in your HMRC personal tax account or the HMRC app. HMRC decides the code, and your payroll team can only apply what HMRC sends.