UK Tax Guide 2025/26

Income Tax is the main tax on employment income in the United Kingdom. It's collected through the Pay As You Earn (PAYE) system. Your employer deducts it from your salary each pay period before you receive your wages.

Everyone gets a tax-free Personal Allowance of £12,570 for the 2025/26 tax year. You only pay Income Tax on earnings above this threshold. The allowance is reduced by £1 for every £2 earned over £100,000, reaching zero at £125,140.

England, Wales & Northern Ireland Tax Bands (2025/26)

Source: GOV.UK: Income Tax rates

Scotland sets its own Income Tax rates and bands. Scottish taxpayers have a tax code beginning with 'S' (e.g. S1257L). National Insurance rates are the same across the whole UK.

Scottish Tax Bands (2025/26)

Source: GOV.UK: Scottish Income Tax

National Insurance contributions (NICs) fund the State Pension, NHS, and other benefits. Employees pay Class 1 NICs through PAYE. You stop paying employee NI when you reach State Pension age.

Employee NI Rates (2025/26)

Source: GOV.UK: National Insurance rates

If you have a student loan, repayments are deducted from your salary through PAYE once you earn above your plan's repayment threshold. The amount repaid is a percentage of income above the threshold, not your total income.

Repayment Thresholds (2025/26)

Source: GOV.UK: Student loan repayments

Workplace pension contributions reduce your tax bill, but the amount of relief depends on the scheme type. Under auto-enrolment, the minimum total contribution is 8% of qualifying earnings (5% employee, 3% employer).

Pension Scheme Types

Annual Allowance (2025/26)

You can contribute up to £60,000 per year to pensions with tax relief (or 100% of your earnings, whichever is lower). This is the Annual Allowance. For high earners (adjusted income over £260,000), the allowance tapers down to a minimum of £10,000.

Source: GOV.UK: Pension tax relief

One of the most misunderstood features of UK tax is the Personal Allowance taper. For every £2 you earn over £100,000, you lose £1 of your £12,570 Personal Allowance. This creates an effective marginal rate of approximately 60% between £100,000 and £125,140.

For example, a £1,000 pay rise at £110,000 gross costs you around £600 in additional tax and lost allowance, so you keep only ~£400.

Your tax code tells your employer how much tax-free income you're entitled to. The most common code is 1257L, giving the standard Personal Allowance of £12,570. Find yours on your payslip, P45, P60, or HMRC online account.

Common Tax Codes

Enter your tax code in the calculator's advanced settings for a personalised breakdown. GOV.UK: Tax codes

If you're married or in a civil partnership and one partner earns less than the Personal Allowance (£12,570), they can transfer up to £1,260 to the higher earner. The receiving partner must be a basic rate taxpayer (not higher or additional rate).

This saves up to £252 per year (£1,260 × 20%). The transferring partner gets code 1194N and the receiving partner gets 1382M, reflecting adjusted allowances.

Source: GOV.UK: Marriage Allowance

Employers pay a separate National Insurance contribution on top of employee NI. This is not deducted from your salary, but represents the true cost of employing you.

Employer NI Rates (2025/26)

There is no upper earnings limit for employer NI. It applies to all earnings above the threshold. For a £50,000 salary, the employer pays approximately £6,750 in NI on top of the gross salary.

Source: GOV.UK: National Insurance rates