How UK Income Tax Works (2026/27)
Income Tax is the largest deduction from most UK payslips, but few people have actually seen the mechanics behind the number. This guide walks through exactly how HMRC calculates it — from your tax code down to the final figure — with worked examples.
For the full set of current rates, see the UK Personal Finance Wiki. To see your own numbers, use the UK Take-Home Pay Calculator.
Contents
The core idea: it's not a flat percentage
UK Income Tax is marginal, not flat. You don't pay one rate on your whole salary — each slice of income is taxed at the rate for the band it falls into, and only the amount inside that band is taxed at that rate. Earning £51,000 doesn't mean you suddenly pay 40% on all £51,000; it means the last £730 is taxed at 40% while everything below still sits in the 0%/20% bands.
2026/27 Income Tax bands
Applies in England, Wales and Northern Ireland (Scotland uses separate bands):
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
These thresholds have been frozen since 2021/22 and remain unchanged for 2026/27, so as wages rise with inflation, more income gets pulled into higher bands each year even without a pay rise in real terms — this is often called "fiscal drag."
What a tax code actually means
Your tax code (shown on your payslip, e.g. 1257L) tells your employer how much tax-free pay you get before deductions start. 1257L is the standard code for 2026/27 — the number (1257) represents £12,570 of tax-free Personal Allowance, and the letter (L) means you're entitled to the standard allowance with no special adjustments.
Other common letters:
- BR — all income taxed at basic rate (20%), often used for a second job.
- D0 — all income taxed at higher rate (40%).
- K — you owe tax from a previous year or have taxable benefits that exceed your allowance, so tax is added rather than allowance given.
- NT — no tax deducted at all.
If your tax code looks wrong (e.g. it doesn't include the standard £12,570), it's worth checking with HMRC directly — an incorrect code is one of the most common causes of over- or under-paid tax.
The Personal Allowance taper (the "60% tax trap")
If your income goes over £100,000, your Personal Allowance shrinks by £1 for every £2 you earn above that — fully gone by £125,140. Combined with the 40% higher rate, this creates an effective marginal rate of 60% on income between £100,000 and £125,140, since every extra £2 earned also costs you £1 of tax-free allowance.
This is why pension salary sacrifice is particularly valuable in this income band — contributing enough to bring taxable income back under £100,000 can recover the lost allowance as well as avoiding the tax itself.
Worked examples
£35,000 salary (rUK, standard tax code, no pension):
- Personal Allowance: £12,570 tax-free
- Taxable income: £35,000 − £12,570 = £22,430
- All of it falls in the basic rate band (20%)
- Income Tax: £22,430 × 20% = £4,486
£60,000 salary (rUK, standard tax code, no pension):
- Taxable income: £60,000 − £12,570 = £47,430
- Basic rate band (£12,571–£50,270, i.e. £37,700 of taxable income): £37,700 × 20% = £7,540
- Higher rate band (remaining £9,730 of taxable income): £9,730 × 40% = £3,892
- Income Tax: £7,540 + £3,892 = £11,432
£110,000 salary (rUK, standard tax code, no pension) — inside the taper:
- Personal Allowance reduced: (£110,000 − £100,000) ÷ 2 = £5,000 lost, leaving £7,570 allowance
- Taxable income: £110,000 − £7,570 = £102,430
- Basic rate band: £37,700 × 20% = £7,540
- Higher rate band (remaining £64,730): £64,730 × 40% = £25,892
- Income Tax: £7,540 + £25,892 = £33,432
See exact figures for your own salary, including National Insurance and student loan, with the take-home pay calculator.
Scotland is different
Scottish residents pay Income Tax on six bands instead of three — see the full table in the Personal Finance Wiki. Scotland's starter and basic bands widened for 2026/27, so lower earners now pay less than the rest of the UK up to a higher point than before — the crossover sits at roughly £33,500, above which Scottish taxpayers pay more, because Scotland's higher rate (42%) starts at £43,663 rather than £50,270. National Insurance is unaffected — it's the same across the whole UK regardless of where you live.
How PAYE spreads tax across the year
Employers don't wait until the end of the tax year to collect Income Tax — PAYE (Pay As You Earn) calculates and deducts it every payday, based on a cumulative basis by default. This means your Personal Allowance and each band are effectively divided by 12 (for monthly pay) or 52 (weekly), and HMRC tracks running totals across the year so that, for a stable salary, the year-end result matches the annual calculation almost exactly. It's also why a one-off bonus can look like it's taxed unusually heavily in the month it's paid — PAYE assumes that month's higher pay might continue all year, then corrects itself in later months if it doesn't.
FAQ
Do I pay 40% tax on my whole salary if I earn £55,000?
No. Only the portion of income above £50,270 is taxed at 40%. Everything below that is still taxed at 20% (above the Personal Allowance) or 0% (within it).
What is the standard tax code for 2026/27?
1257L, representing the standard £12,570 Personal Allowance with no adjustments — unchanged from previous years, since the allowance itself remains frozen.
Why did my payslip show more tax than usual this month?
Usually a bonus, overtime, or a change in tax code. PAYE assumes a higher month's pay might be your new normal, applying tax at a higher marginal rate that month — it typically evens out later in the year via the cumulative calculation.
At what income does the Personal Allowance disappear completely?
£125,140 — above this, you get no tax-free allowance at all and effectively pay 45% (40% in Scotland's advanced band, or 48% additional rate) on income from £0 upward in practice, since the allowance is already fully withdrawn.
Is Income Tax the same as National Insurance?
No — they're calculated separately, with different thresholds and rates, and fund different things (Income Tax funds general government spending; National Insurance contributions count toward State Pension and certain benefit eligibility). See the National Insurance section of the finance wiki.
More guides
This page is for general information only and does not constitute tax advice. Figures are correct for the 2026/27 tax year. For advice on your specific situation, consult HMRC or a qualified tax adviser.