Guide · tax year 2026/27
How UK income tax works
The Personal Allowance, tax bands and rates, and how your income tax is worked out, explained in plain English.
Income tax is the tax you pay on most of what you earn: wages, a pension, profits if you are self-employed, and some other income. It is worked out over a tax year, which runs from 6 April to the following 5 April. This guide explains the parts that decide how much you pay, using the figures for 2026/27.
Your Personal Allowance
Most people can earn a certain amount each year before paying any income tax. This is the Personal Allowance, and for 2026/27 it is £12,570 (GOV.UK: Income Tax rates). How much income tax you pay depends on how much of your income is above your Personal Allowance and how much of it falls within each tax band.
The allowance is not the same for everyone. It shrinks once your adjusted net income goes over £100,000: you lose 50% of every pound above that level until there is nothing left. Our guide to the £100,000 tax trap explains why that creates a very high rate of tax for some people.
Tax bands and rates
Income above your allowance is taxed in bands. Each rate applies only to the slice of income inside its band, not to all of your income. That is why moving into a higher band never makes you worse off overall: only the pounds above the line are taxed at the higher rate.
In England, Wales and Northern Ireland, the bands for 2026/27 are:
| Band | Taxable income (after your allowance) | Rate |
|---|---|---|
| Basic rate | Up to £37,700 | 20% |
| Higher rate | Up to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
The limits in this table are amounts of taxable income, which is your income after the Personal Allowance. HMRC's employer tables set them out this way (GOV.UK: rates and thresholds for employers). GOV.UK's main page shows the same bands as ranges of total income, which assume you get the full allowance.
Wales sets its own rates of income tax, but for 2026/27 they are the same as England's (GOV.UK: Welsh Income Tax). Scotland has its own bands and rates for wages and pensions, explained in our guide to Scottish income tax.
Two worked examples
A salary of £30,000. The first £12,570 is tax-free. The remaining £17,430 all falls in the basic rate band, taxed at 20%. That is £3,486.00 of income tax for the year.
A salary of £60,000. Again the first £12,570 is tax-free, leaving £47,430 of taxable income. The first £37,700 of it is taxed at 20%, and the rest at 40%. The total is £11,432.00.
Notice that doubling the salary more than triples the tax. That is the effect of the higher rate on the top slice, not a penalty on the whole salary.
How you pay it
If you are employed or get a workplace pension, your employer or pension provider takes income tax from each payment through Pay As You Earn (PAYE). They use your tax code to know how much of your pay is tax-free. Our guide What is a tax code? explains what the code means and why it might change.
If you are self-employed, or have income that PAYE does not cover, you usually report it on a Self Assessment tax return. Our guide for the self-employed covers National Insurance on profits.
Income tax is not the only deduction
Employees also pay National Insurance on their earnings, and many people repay a student loan or pay into a pension through their pay. These are worked out separately from income tax, with their own thresholds. Our guides to National Insurance and student loans explain them, and the salary calculator brings everything together.
Other types of income
Dividends are taxed at their own rates, on top of your other income, with a separate dividend allowance. See how dividend tax works. Savings interest also has its own rules, which this site does not cover yet. Some income is tax-free altogether.
Marginal and effective rates
Two rates help you understand your own tax. Your effective rate is the share of your whole salary that goes in tax. Your marginal rate is the share of your next pound that goes in tax. On £45,000, the effective rate for income tax and National Insurance together is 20.18%, but the marginal rate is 28%. The marginal rate is the one that matters when you think about a pay rise or extra hours; the effective rate is the one that tells you how much of your salary you keep overall.
Common questions
Does a pay rise ever leave me worse off?
Not because of the income tax bands themselves, because each rate applies only to the income inside its band. Other rules, such as the Personal Allowance taper above £100,000 or the Child Benefit charge, can take a large share of extra income, but you still keep part of each extra pound.
Why is my tax different from this guide?
Payroll works out tax for each pay period using your tax code, so a payslip can differ slightly from yearly figures like these. Read why your payslip differs from a salary calculator.
General information for the 2026/27 tax year, not financial or tax advice. We are not HMRC. Found a mistake? See our corrections policy.