How does UK income tax actually work?

The UK collects Income Tax in two ways. PAYE (Pay As You Earn) is the default for employees: your employer takes Income Tax and National Insurance off each payslip using a tax code HMRC issues, and pays it to HMRC under Real Time Information. Self Assessment is the annual return for self-employed people, landlords, dividend recipients above £500, anyone earning over £150,000, and anyone with untaxed income above the £1,000 trading or property allowance. Most taxpayers only ever see PAYE - around 12 million also file Self Assessment alongside it.

What is the Personal Allowance for 2026/27?

The standard Personal Allowance is £12,570 for 2026/27, frozen by policy through 2027-28. It is the slice of income you can earn before paying any Income Tax. The allowance tapers down by £1 for every £2 of income above £100,000, hitting zero at £125,140 - this taper is what creates the 60% marginal rate trap between £100,000 and £125,140.

What are the UK Income Tax bands?

For 2026/27 the rest-of-UK bands are: 20% basic rate on taxable income up to £37,700 (so £50,270 gross with the full Personal Allowance); 40% higher rate from £50,270 to £125,140; 45% additional rate above £125,140. Scotland has six bands instead of three: 19% Starter, 20% Scottish Basic, 21% Intermediate, 42% Higher, 45% Advanced, 48% Top.

Is National Insurance just another income tax?

Functionally yes, but legally separate. Class 1 employee NI is 8% on earnings from £12,570 to £50,270 and 2% above. Employer Class 1 NI sits on top at 15% above £5,000 from April 2025. Self-employed pay Class 2 (£3.65/week voluntary above £7,105 profits) and Class 4 (6% / 2% on profits). NI funds the State Pension, contributory benefits and the NHS - though in practice it flows into the same Treasury pot as Income Tax.

How do I know if I need to file Self Assessment?

You must file if any of these apply for 2026/27: self-employment over £1,000 gross, rental income over £1,000 gross, dividends over £500, total income over £150,000, foreign income, capital gains above the £3,000 annual exempt amount, claiming Child Benefit when either partner earns over £60,000 (HICBC), or partnership profits. You can also opt in voluntarily to claim higher-rate pension relief, Gift Aid top-up, or EIS / SEIS / VCT credits.

What does the tax code 1257L mean?

1257L is the standard tax code in 2026/27. The 1257 is your Personal Allowance divided by 10 (£12,570 / 10), and the L suffix means you get the standard allowance. Other letters: M means you received Marriage Allowance, N means you transferred it, BR means everything is taxed at basic rate (often a second job), 0T means no allowance at all, K-prefix codes mean negative allowance because BIK or owed tax exceeds the PA, NT means no tax, D0 means everything at 40%, D1 means everything at 45%, and W1 or M1 suffixes mean emergency non-cumulative.

When are the Self Assessment deadlines?

For the 2026/27 tax year (ending 5 April 2027): register by 5 October 2027 if it is your first time, file on paper by 31 October 2027, file online by 31 January 2028, pay the balancing payment by 31 January 2028, and pay the second payment on account by 31 July 2028. Missing the 31 January online filing triggers an automatic £100 penalty even if you owe nothing, with daily £10 penalties from 1 May and 5% surcharges at 30 days, 6 months and 12 months late.

When does MTD ITSA kick in?

Making Tax Digital for Income Tax Self Assessment is phased by income: 6 April 2026 for self-employed and landlords with combined gross income over £50,000, 6 April 2027 for over £30,000, and a planned (unscheduled) extension to over £20,000. MTD ITSA replaces the annual SA return with quarterly digital updates plus a final declaration, all through HMRC-recognised software. PAYE-only employees and people with side income under £30,000 (for now) are not affected and continue with standard Self Assessment.

How is a bonus taxed in the UK?

A bonus is taxed at your marginal rate in the month it is paid. If the bonus pushes you into a higher band that month, PAYE deducts at the higher rate, often producing a payslip that looks alarming. Two specific traps: bonuses that push annual income between £100,000 and £125,140 trigger Personal Allowance taper at an effective marginal rate of 60%, and bonuses that push household income above £60,000 trigger HICBC if Child Benefit is claimed. Salary sacrifice into pension is the standard mitigation - it reduces gross pay below the trap thresholds and saves Income Tax plus 8% employee NI plus 15% employer NI.

How much tax-free redundancy can I get?

The first £30,000 of statutory or non-contractual redundancy pay is tax-free and NI-free. Anything above £30,000 is taxed as employment income at your marginal Income Tax rate (no NI for the employee, but employer NI of 15% applies). The £30,000 limit has been unchanged since 1988. Pay In Lieu Of Notice (PILON) is fully taxable as earnings since the 6 April 2018 reform. Statutory redundancy itself is capped by a weekly cap (£751 from 6 April 2026) and 20 years of service maximum.

What is the 60% tax trap?

The 60% trap is the effective marginal rate between £100,000 and £125,140 caused by the Personal Allowance taper. The £12,570 PA reduces by £1 for every £2 over £100,000, hitting zero at £125,140. Within that £25,140 band you pay 40% Income Tax on the slice itself plus 40% on the £1 of PA you lose for every £2 earned - a £1 PA loss is £0.40 extra tax, applied as you earn £2 of new income, so the combined marginal rate is (40% + 40%/2) = 60%. Pension salary sacrifice that drops adjusted net income below £100,000 escapes the trap entirely.

Where can I verify these figures myself?

Every number on this page traces to a primary source. Income Tax bands: gov.uk/income-tax-rates. NI rates: HMRC's Rates and thresholds for employers 2026/27. Self Assessment: gov.uk/self-assessment-tax-returns. Tax codes: HMRC PAYE Manual (PAYE15500). MTD ITSA: gov.uk/government/collections/making-tax-digital. Benefits: DWP benefit rates publication. Forecasts: OBR Economic and Fiscal Outlook. See our full data-provenance index at /data-sources for retrieval dates on every figure.

How UK Tax Works (2026/27)

The UK tax system looks intimidating because it stacks several mechanisms on top of the same income: Income Tax, two flavours of National Insurance, the Personal Allowance taper, the Child Benefit charge, student loan deductions, the Apprenticeship Levy, plus a separate return system for anyone earning outside payroll. This page is the canonical explainer - everything you need to understand the UK tax machine in one place, with live figures from the HMRC ruleset for 2026/27 and a worked PAYE example. Every section links out to the relevant calculator or deeper explainer when you want to test your own numbers.

1. Two ways the UK collects income tax

The UK has two parallel tax-collection systems for the same Income Tax liability. PAYE (Pay As You Earn) is the default mechanism for the roughly 33 million people in employment: your employer runs payroll software, applies the tax code HMRC has given you, and deducts Income Tax and Class 1 National Insurance from every payslip before the net figure lands in your bank account. The deducted tax is remitted to HMRC by the 22nd of the following month under Real Time Information (RTI), the same-day reporting framework mandatory since April 2013. By 5 April the cumulative deductions should equal the correct annual liability; if not, HMRC issues a P800 calculation showing the under- or overpayment.

Self Assessment (SA) is the annual return for income that does not pass through a payroll. About 12 million taxpayers file an SA return each year: the self-employed, landlords, dividend recipients above £500, partners in partnerships, anyone earning over £150,000 from any source, anyone hit by the High Income Child Benefit Charge, anyone with foreign income or capital gains above the £3,000 annual exempt amount. Self Assessment uses the same tax bands and rates as PAYE - it is a different collection mechanism for the same Income Tax, not a different tax. The output of an SA return is a balancing payment due 31 January following the end of the tax year, plus (almost always) two payments on account towards next year. See PAYE vs Self Assessment for the full decision tree.

The two systems run side by side. Most SA filers are also PAYE employees, and the SA return picks up the P60 figures from the employer (already taxed at source), adds the untaxed income, calculates the marginal tax due on the top slice, and bills the difference. You do not pay tax twice on the PAYE income - the return credits the PAYE deducted against the total bill. The friction point is that side income stacks above the PAYE salary for marginal-rate purposes, so a £45,000 PAYE employee adding £8,000 of freelance income pays roughly 46% on the side slice (40% Income Tax + 6% Class 4 NI), not 20%.

HMRC code allocation logic: when you start a job, HMRC matches the employer PAYE scheme to your National Insurance number and looks up your active tax code. First-time employees with no prior PAYE history get the standard 1257L code (full Personal Allowance, cumulative basis). People who recently changed jobs without a P45 are placed on emergency 1257L W1 / M1 (non-cumulative - the allowance is applied to each pay period in isolation instead of cumulatively, which usually overtaxes you until the P45 arrives and HMRC issues a cumulative code). People with a second job typically get a BR code on the second job (everything taxed at basic rate, no PA applied there) because the PA has already been used at the main job.

2. PAYE: how your employer takes tax for you

PAYE is the UK's withholding system for employment income. The mechanics are straightforward once you separate the four moving parts.

Personal Allowance: the first £12,570 of annual earnings is tax-free for 2026/27. This is set in legislation and the Autumn Statement 2022 froze it through 2027-28. The allowance is applied across the pay periods cumulatively, which is why your monthly take-home rises slightly in months where overtime or bonuses do not breach the next band - the system is averaging your tax across the year rather than treating each payslip as isolated. The allowance tapers above £100,000 - see the 60% trap section below.

Tax code: HMRC issues every PAYE taxpayer a code that tells the employer how much PA to apply. The standard code is 1257L (the 1257 is the PA divided by ten, and L means standard allowance). Other codes adjust the allowance up (M for received Marriage Allowance, +20% relief for blind taxpayers) or down (K prefix when you owe HMRC enough that the deduction exceeds the allowance, so the code becomes negative). For a full walk-through of every letter and prefix see our tax code explainer.

Income Tax bands for the rest of the UK in 2026/27 (Scotland has six bands instead - we cover that in the Scottish Income Tax guide):

0% on the first £12,570 - the Personal Allowance.
20% basic rate on income from £12,570 to £50,270 (so the basic-rate band itself is £37,700 wide once you strip out the PA).
40% higher rate on income from £50,270 to £125,140.
45% additional rate on income above £125,140.

The 60% trap: between £100,000 and £125,140 the Personal Allowance withdraws at a rate of £1 for every £2 of extra income. That means for every £2 you earn in that band, you pay 40p tax on the £2 itself plus 40p tax on the £1 of PA you just lost (worth £0.40 of extra tax). Net: 80p tax on £2 of income, which is 40% on the slice itself plus another 20% in lost PA, a 60% combined marginal rate. It is the steepest cliff in the UK tax system, and pension salary sacrifice that drops adjusted net income below £100,000 usually pays for itself within a single payslip. See the 60% tax trap calculator for your own numbers, or the dedicated 60% tax trap explainer for mitigation strategies.

Worked PAYE example: £35,000 gross salary, 2026/27, England. Run through our salary calculator engine, the figures break down as:

Component	Annual	Monthly
Gross salary	£35,000	£2,917
Personal Allowance applied	£12,570	£1,048
Income Tax (basic rate)	£4,486	£374
Employee NI (Class 1)	£1,794	£150
Take-home pay	£28,720	£2,393
Effective tax + NI rate	17.9%	17.9%

The headline observation: on a £35,000 salary the combined Income Tax + NI burden is 17.9% of gross, not the headline 20% basic rate. NI adds another 8% on the slice between £12,570 and £50,270, which is most of the salary here. For your own figures use the salary calculator.

3. National Insurance: a second income tax

National Insurance is structurally a second Income Tax on earnings, dressed up as a social-insurance contribution. The branding matters legally (NI funds the State Pension and contributory benefits) but in cash-flow terms it deducts from your earnings exactly like Income Tax.

Class 1 (employees): the main employee NI class.

Main rate 8% on weekly earnings between the Primary Threshold (£12,570 annual) and the Upper Earnings Limit (£50,270 annual).
Additional rate 2% on earnings above the UEL.
Zero NI if you are over State Pension age (the employer still pays employer NI).
The 2024 cuts (12% to 10% to 8%) ended at the 8% headline rate; current Labour government has not signalled further cuts in the Budget 2026.

Employer Class 1 NI: from 6 April 2025 the employer rate jumped from 13.8% to 15%, and the Secondary Threshold (the salary point above which employer NI applies) was cut from £9,100 to £5,000. This is the biggest tax change for UK employers since the pandemic - on a £35,000 salary the employer now pays roughly £4,500/year in NI, up from £3,575 under the old rate and threshold. For day-rate negotiations, contractor umbrella costing and salary sacrifice ROI calculations the employer NI figure matters even though it does not appear on the employee payslip.

Self-employed NI: paid via Self Assessment rather than payroll.

Class 2: £3.65 per week (£190/year) once profits exceed the Small Profits Threshold of £7,105. Voluntary - paying Class 2 protects your State Pension qualifying years and entitlement to contributory benefits even though it is no longer compulsory above the SPT (since April 2024).
Class 4: 6% on profits between £12,570 and £50,270, then 2% on profits above. This is the self-employed equivalent of employee Class 1 NI, levied through the SA return rather than payroll.

Class 1A (P11D BIK): employer-only NI on taxable benefits in kind reported via P11D (company cars, private medical insurance, interest-free loans over £10k, etc). Same 15% rate as Class 1 secondary. Employee pays Income Tax on the BIK cash equivalent through PAYE (their tax code is adjusted to claw it back) but no employee NI. Use our P11D / BIK calculator to model the after-tax cost of any benefit in kind.

Apprenticeship Levy: 0.5% of employer payroll above £3 million, with a £15,000 annual allowance. Roughly 2% of UK employers pay it (large employers and groups). Funds the apprenticeship system and is recoverable through the digital apprenticeship service for approved training. Model it with the Apprenticeship Levy calculator.

4. Tax codes: what the letters mean

A tax code is HMRC's signal to your employer about how much Personal Allowance to apply. The number is the allowance divided by 10 (so 1257 = £12,570 PA). The letter modifies that.

L - standard. Full PA, normal taxpayer. The default. See 1257L explained in full.
M - received Marriage Allowance. PA is the standard £12,570 + £1,260 transferred from a spouse = £13,830 effective, code 1383M.
N - transferred Marriage Allowance. PA is £12,570 - £1,260 = £11,310, code 1131N.
BR - basic rate. No PA applied to this income; everything in this employment taxed at 20%. Almost always a second job where the main job already used the PA. See BR code explained.
0T - no allowance at all. PA is zero. Usually applied when HMRC has no record of your circumstances (new starter without P45) or when income exceeds £125,140 (PA has fully tapered away). See 0T code explained.
K-prefix (e.g. K500) - negative allowance. The deduction owed (unpaid prior-year tax, large BIK) exceeds the PA, so the code is inverted. K500 means add £5,000 to your taxable income before applying band rates. See K500 explained.
NT - no tax. Rare. Used for non-residents under double-taxation treaty, certain Scottish landlords, students returning home temporarily. See NT code explained.
D0 - everything at higher rate (40%). Second job for someone already in the higher band on their main job. See D0 / D1 explained.
D1 - everything at additional rate (45%). Second job for additional-rate payer.
W1 / M1 suffix - emergency, non-cumulative. The allowance is applied to each pay period in isolation rather than cumulatively across the year. Usually appears mid-year when you change jobs without a P45; HMRC switches you back to cumulative once they reconcile the prior employment.

Emergency codes (W1/M1) almost always overtax you because they cannot use unused allowance from earlier pay periods. File the P45 from your old employer (or complete the new starter checklist) to get switched back to cumulative as quickly as possible. Once HMRC reconciles your figures mid-year, the next payslip absorbs the catch-up - you may see an unusually small tax deduction (or even a refund through payroll) on the next pay date as the overtax unwinds. For a deep dive on every letter, see the tax code explainer hub.

5. Self Assessment: when you must file

Self Assessment is the framework for declaring income that did not pass through a payroll. You must file an SA return for 2026/27 if any of the following apply:

Total income over £150,000 from any source. The previous £100k threshold was removed in April 2023; £150k is the current automatic-SA threshold for high earners.
Self-employment over £1,000 gross. Trading allowance covers the first £1,000; above that, register for SA.
Property income over £1,000 gross. The property allowance equivalent to the trading allowance.
Dividend income over £500. The dividend allowance has fallen from £2,000 (2022-23) to £1,000 (2023-24) to £500 (2024-25 onwards). Above £500, SA is required.
HICBC threshold breached. If your or your partner's adjusted net income is over £60,000 and Child Benefit is claimed, the higher earner files SA. See HICBC explained.
Foreign income. Any income from outside the UK, including foreign pensions and overseas rental.
Capital gains over £3,000. The annual exempt amount fell from £12,300 to £6,000 to £3,000 over 2022-2025. Disposals above that go on SA (residential property within 60 days via the separate UK Property Disposal service).
Partnership profits. Each partner files their share.
Trustees and executors. Trust and estate income.

Registration and UTR. First-time filers register at gov.uk/register-for-self-assessment. HMRC issues a 10-digit Unique Taxpayer Reference (UTR) and an activation code by post within 10 working days. The activation code is required to log into the online SA service. Plan for at least three weeks between registration and first filing. The deadline for registering for the 2026/27 tax year is 5 October 2027.

Deadlines for the 2026/27 return (tax year ending 5 April 2027):

5 October 2027 - register if it is your first SA year.
31 October 2027 - paper return deadline (almost nobody files on paper any more).
30 December 2027 - online filing deadline if you want HMRC to collect a tax bill under £3,000 through next year's PAYE code.
31 January 2028 - online filing + balancing payment + first payment on account (50% of estimated next year's tax).
31 July 2028 - second payment on account (the other 50%).

Penalties. £100 automatic the day after 31 January even if you owe nothing. £10/day from 1 May, capped at £900 (so 90 days). £300 or 5% of tax due (whichever is greater) at 6 months. Another £300 or 5% at 12 months. Late payment is a separate regime: 5% of unpaid tax at 30 days, 6 months and 12 months, plus daily interest at the Bank of England base rate + 2.5%. Time to Pay arrangements with HMRC can pause late-payment penalties but not the filing penalty - so file even if you cannot pay, then call HMRC's payment helpline to arrange instalments.

MTD ITSA timeline. Making Tax Digital for Income Tax Self Assessment replaces the annual return with quarterly digital updates for self-employed and landlords, phased by income:

6 April 2026 - combined business / property gross income over £50,000.
6 April 2027 - combined gross over £30,000.
Future - extension to over £20,000 planned but unscheduled.

Under MTD ITSA you submit four quarterly updates through HMRC-recognised software, plus a final declaration. PAYE-only employees and people with side income under £30,000 (for now) continue with the standard annual SA return. See our MTD ITSA 2026 guide for the software-vendor landscape and exemptions.

6. Self-employment specifically

Sole traders and partners pay Income Tax and Class 2/Class 4 NI on their profits, not their turnover. The mechanics differ in several specific ways from employment.

Trading allowance. The first £1,000 of gross self-employment income is tax-free and requires no return at all. Above £1,000 you must register for SA. The allowance is gross income, not net - £900 of dog-walking with £600 of expenses still falls under the allowance because gross is below £1,000. Useful for casual side gigs that you want to test without taking on the SA filing burden.

Cash basis vs accrual. Sole traders with turnover under £150,000 can elect the cash basis - revenue when received, expenses when paid, no debtor / creditor adjustments. From April 2024 the cash basis became the default for new registrations (you can elect into accruals if you prefer). Cash basis is simpler bookkeeping but restricts loss relief and limits interest deductions to £500. Accrual is the GAAP-style approach used by limited companies.

Capital allowances and the Annual Investment Allowance. Plant and machinery purchases (laptops, tools, vehicles other than cars, equipment) attract capital allowances. The Annual Investment Allowance (AIA) gives 100% first-year relief on the first £1,000,000 of qualifying expenditure each year - which means full deduction in year one rather than depreciating over multiple years. AIA was made permanent at £1m in April 2023 after a series of short-term extensions. Cars are excluded from AIA (they get separate writing-down allowance pools). Model your capital allowance position with our capital allowances calculator.

NIC for the self-employed. Class 2 is £3.65/week (£190/year), voluntary above the Small Profits Threshold of £7,105 since April 2024. Paying voluntary Class 2 protects State Pension qualifying years and is almost always worth it - it is among the cheapest ways to buy a State Pension year. Class 4 is the headline NI for the self-employed at 6% on profits between £12,570 and £50,270, then 2% above. Class 4 is 2 percentage points lower than employee Class 1 (8% vs 6%) because the self-employed do not get the same contributory benefit entitlement (no statutory sick pay, no statutory maternity pay, weaker job-seekers benefit).

Model your full self-employed take-home (profit minus Income Tax minus Class 4 NI minus Class 2 if voluntarily paid) with the self-employed calculator. For freelancers operating via a limited company instead of sole trader, see the next section.

7. Limited company route

Operating as a director of your own limited company is the tax-efficient structure for contractors and freelancers with stable five-figure-plus annual profits. The mechanics: the company pays Corporation Tax on its profits, then distributes what's left to you as a mix of director's salary (deductible expense for the company) and dividends (paid from post-CT profits). You pay personal Income Tax on both, but at different rates from employment income.

Corporation Tax. The main rate is 25% on profits above £250,000. Companies with profits below £50,000 pay the small profits rate of 19%. Profits between £50,000 and £250,000 pay the main rate minus a tapered marginal relief, giving an effective rate that rises smoothly from 19% to 25%. Group thresholds are divided by the number of associated companies. Model your CT bill with the Corporation Tax calculator.

Director's salary optimisation. The standard tax-efficient salary is set just below the employer NI Secondary Threshold (£5,000 from April 2025) or at the Primary Threshold (£12,570), depending on whether you have used your Employment Allowance. Paying a small salary protects your State Pension qualifying year (which requires earnings above the Lower Earnings Limit) while minimising employee and employer NI. The remaining take-home is paid as dividends.

Dividend taxation. The first £500 of dividend income each tax year is tax-free (down from £2,000 in 2022-23). Above £500, dividends are taxed at:

8.75% within the basic-rate band (i.e. when total taxable income including dividends is below £50,270).
33.75% within the higher-rate band.
39.35% within the additional-rate band.

Dividends do not attract NI - that is the structural advantage of the limited company route. Combined with the small-salary trick, a £60,000 take-home target costs noticeably less in total tax than an equivalent PAYE salary. The exact break-even depends on IR35 status (if caught inside IR35, the structure stops working because PAYE applies on the deemed salary), corporation tax band, and whether you use a spouse as a fellow shareholder. Model the full picture with the dividend tax calculator and the contractor calculator. For the IR35 decision tree see inside vs outside IR35.

8. Pensions: deductions that lower tax

Pension contributions are the most powerful tax-mitigation lever for UK earners. The mechanics matter because the method changes how much tax you save and whether NI also comes off.

Annual Allowance £60,000. The standard cap on how much you (and your employer combined) can contribute to all your pensions in a tax year while still receiving tax relief. Excess contributions trigger an annual allowance charge at your marginal rate. Unused allowance from the prior three tax years can be carried forward.

Tapered Annual Allowance. For high earners, the £60k AA tapers down by £1 for every £2 of "adjusted income" above £260,000, to a minimum of £10,000 at adjusted income of £360,000+. Adjusted income includes your salary, bonus, BIK and employer pension contributions, so the taper catches anyone earning over roughly £250k once employer pension is added. Model the taper with our pension annual allowance calculator.

Money Purchase Annual Allowance (MPAA) £10,000. Once you start flexibly drawing from a defined contribution pension (drawdown or UFPLS), the AA drops permanently to £10,000 for further DC contributions. Designed to stop retirees recycling tax-free cash back into pensions. Does not affect defined benefit accrual.

Three contribution methods.

Net Pay arrangement. Pension deducted from gross pay before PAYE. Income Tax relief automatic at your marginal rate. NI not relieved. Common in older occupational schemes.
Relief at Source (RAS). Pension paid from net (post-tax) pay. Provider claims 20% basic-rate relief back from HMRC and adds it to your pot. Higher-rate / additional-rate payers must claim the extra 20% or 25% via Self Assessment. Standard for personal pensions and most workplace SIPPs.
Salary sacrifice. You contractually agree to a lower salary, the employer pays the foregone amount into your pension. Income Tax saved, employee NI saved (8% / 2%), employer NI saved (15%). The employer usually shares the employer NI saving with you, boosting the effective contribution. Best mechanism by a wide margin for higher earners.

For a side-by-side comparison see salary sacrifice vs relief at source. Run your own numbers through the pension contribution calculator or the dedicated salary sacrifice calculator. For the auto-enrolment minimums (3% employer / 5% employee / 8% combined) see workplace pension auto-enrolment.

9. One-off events: bonuses, redundancy, property sale

The UK system handles lump sums with several different rules depending on the type.

Bonuses. Bonuses are taxed at your marginal rate in the month they are paid. PAYE applies your code cumulatively, so the system smooths the deduction over the remaining pay periods rather than taking 40% in one hit - but the bonus does add to annual gross for Personal Allowance taper purposes. Two specific traps: bonuses that push annual income between £100,000 and £125,140 hit the 60% marginal rate from PA taper, and bonuses that push household income above £60,000 trigger HICBC if Child Benefit is claimed. Salary sacrifice into pension is the standard mitigation - it reduces gross below the trap thresholds. Model with the bonus tax calculator.

Redundancy. The first £30,000 of statutory or non-contractual redundancy pay is tax-free and NI-free. Anything above £30,000 is taxed as employment income at your marginal Income Tax rate (no employee NI; employer pays 15% Class 1A on the excess). The £30,000 limit has been unchanged since 1988 - it has lost about 60% of its real value to inflation. Statutory redundancy itself is capped by a weekly cap (£751 from 6 April 2026) and 20 years of service. Pay In Lieu Of Notice (PILON) is fully taxable as earnings since the 6 April 2018 reform - it does not eat into the £30,000 exemption. Model with the redundancy calculator.

Capital Gains Tax on property and shares. The CGT annual exempt amount (AEA) is £3,000 from 2024-25 onwards, down from £12,300 in 2022-23. Above the AEA:

Residential property (other than your main home): 18% basic, 24% higher / additional rate.
Other assets (shares, business assets, second-hand goods over £6k): 10% basic, 20% higher / additional.
Business Asset Disposal Relief (formerly Entrepreneurs' Relief): 14% from 6 April 2025, rising to 18% from 6 April 2026 on the first £1m lifetime gains from qualifying business disposals.
Investors' Relief: 18% lifetime cap, reduced from £10m to £1m at the Autumn Statement 2024.

UK residential property disposals must be reported and CGT paid within 60 days via the dedicated UK Property Disposal service; other gains go on the next SA return. Model with the capital gains tax calculator.

Stamp Duty on property purchase. SDLT (England + Northern Ireland), LBTT (Scotland), LTT (Wales) - all paid by the buyer, all using progressive bands. First-time buyer relief in England gives a 0% rate up to £425,000 (provided property price is under £625,000). Buying an additional property (second home / buy-to-let) attracts a 5% surcharge on top of standard rates. Model your buying stamp duty bill with our regional calculators: SDLT calculator, LBTT calculator for Scotland, LTT calculator for Wales. First-time buyer? See our first-time buyer SDLT checklist.

10. Family + benefits interactions

Several UK tax mechanisms interact with household composition rather than individual income - so the same gross salary can produce very different post-tax outcomes depending on family structure.

Child Benefit and HICBC. Child Benefit is worth £26.05/week for the eldest child and £17.25 for each additional child in 2026/27. The High Income Child Benefit Charge claws it back when either parent's adjusted net income exceeds £60,000, tapering at £1 of charge per £200 of income over £60,000 until 100% of the benefit is clawed back at £80,000. HICBC is collected through Self Assessment for the higher earner - PAYE codes can be adjusted to spread the cost across the year. See HICBC explained for the full taper mechanics and mitigation.

Marriage Allowance. If one spouse earns below the Personal Allowance and the other is a basic-rate taxpayer, the non-earner can transfer £1,260 of PA to the earner, saving £252 in tax. Worth backdating up to four tax years if you missed earlier years. Model with the marriage allowance calculator.

Universal Credit. The main means-tested benefit, replacing six legacy benefits including tax credits and housing benefit. The taper rate is 55p of UC lost for every £1 of post-tax earnings above the work allowance. Roughly 6 million UK households claim UC. Model your entitlement with the Universal Credit calculator.

Statutory family pay. Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), Statutory Adoption Pay (SAP) and Statutory Sick Pay (SSP) all pay at flat weekly rates set by DWP. SMP is 90% of average weekly earnings for 6 weeks then £194.32/week (capped) for 33 weeks in 2026/27. SPP is 2 weeks at £194.32/week. Model with the maternity pay calculator or the statutory paternity pay calculator.

11. Property tax

Property triggers several distinct taxes at different stages of ownership.

Council Tax. The annual local-authority tax based on the 1991 (England + Scotland) or 2003 (Wales) valuation band of your home. Bands A through H in England and Scotland, A through I in Wales. Set by each council and adjusted by the police precept and adult social care precept. Single-person discount of 25% if you live alone. Full exemption for full-time students. Model your bill by postcode and band with our Council Tax calculator.

Stamp duty on purchase. SDLT, LBTT and LTT are the three UK regional variants. Each uses progressive bands rather than a single rate. First-time buyer relief is available in England (0% up to £425,000), Scotland (£175,000 relief) and Wales (no FTB relief - LTT starts at 0% to £225,000 for any buyer). Additional properties attract a surcharge: 5% SDLT, 8% LBTT (Scotland's Additional Dwelling Supplement), 4% LTT (Wales's Higher Rates for Additional Properties). Run your own numbers with the SDLT calculator, LBTT calculator or LTT calculator.

Inheritance Tax. IHT is charged at 40% on the part of an estate above the Nil Rate Band (£325,000), with a £175,000 Residence Nil Rate Band on top when a main home is left to direct descendants. Bands have been frozen since 2009 (NRB) and 2017 (RNRB), and the freeze runs to 2030 per the Autumn Statement 2024. From April 2027, defined contribution pensions will be included in the estate for IHT purposes - a significant change for estate planning. Model your IHT exposure with the inheritance tax calculator.

12. Where to verify each number

Every figure on this page traces back to a primary source. Bookmark these for your own research - they are the same ones the SalaryTax tax engine cites in its sources array on every ruleset.

Income Tax bands: gov.uk/income-tax-rates
NI rates and employer thresholds: gov.uk Rates and thresholds for employers 2026/27
National Insurance Manual: HMRC NIM
PAYE Manual: HMRC PAYE Manual
Self Assessment: gov.uk/self-assessment-tax-returns
Tax-Free Childcare: gov.uk/tax-free-childcare
Scottish Income Tax: gov.scot Scottish Income Tax rates and bands
Capital Gains Tax: gov.uk/capital-gains-tax/rates
SDLT bands: gov.uk SDLT residential rates
Inheritance Tax: gov.uk/inheritance-tax
State Pension and benefits: DWP publishes annual benefit rates each spring.
Civil Service pay (public-sector benchmarks): Cabinet Office pay remit guidance.
Tax forecasts and policy costings: Office for Budget Responsibility EFO.
SalaryTax data provenance: see /data-sources for retrieval dates on every figure used by our calculators, and /methodology for the calculation methodology.

13. Glossary

For every term in plain English - PAYE, RTI, PA, AA, MPAA, UEL, ST, BIK, P11D, P60, P45, UTR, RNRB, AEA, AIA, ER, BADR, and 130+ more - see our UK tax glossary (158 terms, sorted A-Z).

14. Where to start with our tools

Five most common starting points:

Salary calculator - PAYE take-home from gross salary. The head tool.
Tax code explainer - look up what your code means.
Self-employed calculator - sole trader or partner profit to take-home.
Dividend tax calculator - dividend income alongside salary.
Pension contribution calculator - tax relief modelling on personal contributions.

For the full list see our all calculators page (50+ tools covering every UK tax mechanism). Reference pages: NI rates and bands, Personal Allowance explained, personal savings allowance, dividend allowance, ISA allowance, the 40% bracket, the 45% bracket, the £100k tax trap. Recent policy explainers: Budget 2026 summary, Spring Statement 2026, MTD ITSA 2026 timeline, Apprenticeship Levy explained, tronc and tips tax, cycle-to-work scheme, EV salary sacrifice, trivial benefits exemption, payslip explained line by line.

Frequently asked questions

How does UK income tax actually work?: The UK collects Income Tax in two ways. PAYE (Pay As You Earn) is the default for employees: your employer takes Income Tax and National Insurance off each payslip using a tax code HMRC issues, and pays it to HMRC under Real Time Information. Self Assessment is the annual return for self-employed people, landlords, dividend recipients above £500, anyone earning over £150,000, and anyone with untaxed income above the £1,000 trading or property allowance. Most taxpayers only ever see PAYE - around 12 million also file Self Assessment alongside it.
What is the Personal Allowance for 2026/27?: The standard Personal Allowance is £12,570 for 2026/27, frozen by policy through 2027-28. It is the slice of income you can earn before paying any Income Tax. The allowance tapers down by £1 for every £2 of income above £100,000, hitting zero at £125,140 - this taper is what creates the 60% marginal rate trap between £100,000 and £125,140.
What are the UK Income Tax bands?: For 2026/27 the rest-of-UK bands are: 20% basic rate on taxable income up to £37,700 (so £50,270 gross with the full Personal Allowance); 40% higher rate from £50,270 to £125,140; 45% additional rate above £125,140. Scotland has six bands instead of three: 19% Starter, 20% Scottish Basic, 21% Intermediate, 42% Higher, 45% Advanced, 48% Top.
Is National Insurance just another income tax?: Functionally yes, but legally separate. Class 1 employee NI is 8% on earnings from £12,570 to £50,270 and 2% above. Employer Class 1 NI sits on top at 15% above £5,000 from April 2025. Self-employed pay Class 2 (£3.65/week voluntary above £7,105 profits) and Class 4 (6% / 2% on profits). NI funds the State Pension, contributory benefits and the NHS - though in practice it flows into the same Treasury pot as Income Tax.
How do I know if I need to file Self Assessment?: You must file if any of these apply for 2026/27: self-employment over £1,000 gross, rental income over £1,000 gross, dividends over £500, total income over £150,000, foreign income, capital gains above the £3,000 annual exempt amount, claiming Child Benefit when either partner earns over £60,000 (HICBC), or partnership profits. You can also opt in voluntarily to claim higher-rate pension relief, Gift Aid top-up, or EIS / SEIS / VCT credits.
What does the tax code 1257L mean?: 1257L is the standard tax code in 2026/27. The 1257 is your Personal Allowance divided by 10 (£12,570 / 10), and the L suffix means you get the standard allowance. Other letters: M means you received Marriage Allowance, N means you transferred it, BR means everything is taxed at basic rate (often a second job), 0T means no allowance at all, K-prefix codes mean negative allowance because BIK or owed tax exceeds the PA, NT means no tax, D0 means everything at 40%, D1 means everything at 45%, and W1 or M1 suffixes mean emergency non-cumulative.
When are the Self Assessment deadlines?: For the 2026/27 tax year (ending 5 April 2027): register by 5 October 2027 if it is your first time, file on paper by 31 October 2027, file online by 31 January 2028, pay the balancing payment by 31 January 2028, and pay the second payment on account by 31 July 2028. Missing the 31 January online filing triggers an automatic £100 penalty even if you owe nothing, with daily £10 penalties from 1 May and 5% surcharges at 30 days, 6 months and 12 months late.
When does MTD ITSA kick in?: Making Tax Digital for Income Tax Self Assessment is phased by income: 6 April 2026 for self-employed and landlords with combined gross income over £50,000, 6 April 2027 for over £30,000, and a planned (unscheduled) extension to over £20,000. MTD ITSA replaces the annual SA return with quarterly digital updates plus a final declaration, all through HMRC-recognised software. PAYE-only employees and people with side income under £30,000 (for now) are not affected and continue with standard Self Assessment.
How is a bonus taxed in the UK?: A bonus is taxed at your marginal rate in the month it is paid. If the bonus pushes you into a higher band that month, PAYE deducts at the higher rate, often producing a payslip that looks alarming. Two specific traps: bonuses that push annual income between £100,000 and £125,140 trigger Personal Allowance taper at an effective marginal rate of 60%, and bonuses that push household income above £60,000 trigger HICBC if Child Benefit is claimed. Salary sacrifice into pension is the standard mitigation - it reduces gross pay below the trap thresholds and saves Income Tax plus 8% employee NI plus 15% employer NI.
How much tax-free redundancy can I get?: The first £30,000 of statutory or non-contractual redundancy pay is tax-free and NI-free. Anything above £30,000 is taxed as employment income at your marginal Income Tax rate (no NI for the employee, but employer NI of 15% applies). The £30,000 limit has been unchanged since 1988. Pay In Lieu Of Notice (PILON) is fully taxable as earnings since the 6 April 2018 reform. Statutory redundancy itself is capped by a weekly cap (£751 from 6 April 2026) and 20 years of service maximum.
What is the 60% tax trap?: The 60% trap is the effective marginal rate between £100,000 and £125,140 caused by the Personal Allowance taper. The £12,570 PA reduces by £1 for every £2 over £100,000, hitting zero at £125,140. Within that £25,140 band you pay 40% Income Tax on the slice itself plus 40% on the £1 of PA you lose for every £2 earned - a £1 PA loss is £0.40 extra tax, applied as you earn £2 of new income, so the combined marginal rate is (40% + 40%/2) = 60%. Pension salary sacrifice that drops adjusted net income below £100,000 escapes the trap entirely.
Where can I verify these figures myself?: Every number on this page traces to a primary source. Income Tax bands: gov.uk/income-tax-rates. NI rates: HMRC's Rates and thresholds for employers 2026/27. Self Assessment: gov.uk/self-assessment-tax-returns. Tax codes: HMRC PAYE Manual (PAYE15500). MTD ITSA: gov.uk/government/collections/making-tax-digital. Benefits: DWP benefit rates publication. Forecasts: OBR Economic and Fiscal Outlook. See our full data-provenance index at /data-sources for retrieval dates on every figure.