Income tax is the UK’s largest source of government revenue — and likely the biggest deduction from your pay. Understanding how it works helps you check you’re paying the correct amount, claim reliefs you’re entitled to, and plan your finances more effectively.
This guide covers everything you need to know about UK income tax in 2026/27: the rates and bands, how your personal allowance works, what your tax code means, and how to spot if something’s wrong on your payslip.
How Income Tax Works
Income tax is charged on most types of income: your salary, pension income, rental profits, savings interest (above your allowances), dividends, and self-employment profits. Some income sources are tax-free — like ISA interest, the trading allowance (£1,000), and certain benefits.
The UK uses a progressive tax system. You don’t pay tax at a single rate on all your income — instead, different portions fall into different tax bands, each taxed at increasing rates. Only the income within each band is taxed at that band’s rate.
The Personal Allowance
Before any tax is charged, you get a Personal Allowance — income you can earn completely tax-free.
| Tax Year | Personal Allowance |
|---|---|
| 2026/27 | £12,570 |
| 2025/26 | £12,570 |
| 2024/25 | £12,570 |
The Personal Allowance has been frozen since 2021/22 and is expected to remain at £12,570 until at least April 2028. This freeze, combined with wage growth, has pulled millions more people into higher tax bands — a process called fiscal drag.
Important: The Personal Allowance reduces by £1 for every £2 you earn over £100,000. By the time you reach £125,140, your Personal Allowance has been completely eliminated. This creates an effective 60% marginal tax rate on income between £100,000 and £125,140 — a trap that catches many high earners by surprise.
Income Tax Rates and Bands 2026/27
England, Wales, and Northern Ireland
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | £0 – £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Scotland
Scotland sets its own income tax rates, with more bands and slightly higher rates for many earners:
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | £0 – £12,570 | 0% |
| Starter Rate | £12,571 – £14,876 | 19% |
| Basic Rate | £14,877 – £26,561 | 20% |
| Intermediate Rate | £26,562 – £43,662 | 21% |
| Higher Rate | £43,663 – £75,000 | 42% |
| Advanced Rate | £75,001 – £125,140 | 45% |
| Top Rate | Over £125,140 | 48% |
Scottish taxpayers earning between the Higher Rate threshold (£43,663) and £50,270 pay 2% more than equivalent earners in the rest of the UK. At higher income levels, the gap widens further.
How do you know if you pay Scottish rates? If your main residence is in Scotland on 6 April (the start of the tax year), you pay Scottish income tax. Your tax code will start with an “S” (e.g., S1257L).
How Tax Is Collected: PAYE
Most employees don’t file a tax return — instead, tax is collected automatically through Pay As You Earn (PAYE). Your employer calculates how much income tax and National Insurance to deduct from each pay packet, based on your tax code.
PAYE is designed to spread your annual tax bill evenly across the year. If you’re on a cumulative tax code (most people are), your employer looks at your total pay and tax so far in the tax year, then adjusts each month to keep you on track.
How PAYE Deductions Work
Each pay period, your employer:
- Adds your current pay to your year-to-date total
- Calculates the tax due on your total earnings so far
- Subtracts the tax already paid
- Deducts the remaining amount from this month’s pay
This system automatically corrects over- or under-payments as the year progresses. If you get a bonus, your tax that month will be higher — but it balances out over the year.
Understanding Your Tax Code
Your tax code tells your employer how much tax-free income to give you before charging tax. The standard code for 2026/27 is 1257L:
- 1257 = Your tax-free allowance divided by 10 (£12,570 ÷ 10 = 1257)
- L = You’re entitled to the standard Personal Allowance
Common Tax Code Letters
| Code | Meaning |
|---|---|
| L | Standard Personal Allowance |
| M | You’ve received Marriage Allowance from your spouse |
| N | You’ve transferred Marriage Allowance to your spouse |
| T | HMRC needs to review your code (other calculations involved) |
| 0T | No Personal Allowance (e.g., new job without P45) |
| BR | All income taxed at Basic Rate (20%) — for second jobs |
| D0 | All income taxed at Higher Rate (40%) |
| D1 | All income taxed at Additional Rate (45%) |
| NT | No Tax — income not taxable |
| S | Scottish taxpayer (e.g., S1257L) |
| C | Welsh taxpayer (e.g., C1257L) |
| K | Negative allowance — deductions exceed your allowance |
What Changes Your Tax Code?
Your code can change during the year if:
- You start receiving taxable benefits (company car, health insurance)
- You owe tax from a previous year being collected through your code
- You claim Marriage Allowance
- You start receiving a State Pension
- Your circumstances change (new job, second job)
If your tax code changes, you’ll receive a PAYE Coding Notice from HMRC. Always check this — errors happen, and an incorrect code means you’ll pay the wrong amount all year.
The £100,000 Personal Allowance Trap
One of the UK tax system’s biggest quirks affects anyone earning over £100,000. Your Personal Allowance reduces by £1 for every £2 of income above £100,000. This creates a 60% effective marginal tax rate on income between £100,000 and £125,140:
| Income | Personal Allowance | Lost Allowance |
|---|---|---|
| £100,000 | £12,570 | £0 |
| £110,000 | £7,570 | £5,000 |
| £120,000 | £2,570 | £10,000 |
| £125,140+ | £0 | £12,570 |
Why 60%? On every £2 you earn above £100,000, you pay 40% income tax (£0.80) AND lose £1 of Personal Allowance. That lost allowance would have saved you 40% (£0.40). Total: £1.20 tax on £2 of earnings = 60%.
How to Avoid the Trap
If your income is slightly over £100,000, consider:
- Pension contributions — Salary sacrifice or personal contributions reduce your “adjusted net income”
- Gift Aid donations — Grossed-up donations also reduce adjusted net income
- Timing income — If you have flexibility (bonuses, dividends), consider which tax year income falls into
For example, earning £110,000 and contributing £10,000 to your pension brings your adjusted net income back to £100,000 — restoring your full Personal Allowance and avoiding the 60% trap entirely.
Marriage Allowance: Free Tax Relief for Couples
Marriage Allowance lets lower earners transfer £1,260 of their Personal Allowance to their spouse or civil partner. This saves the higher earner up to £252 per year (20% of £1,260).
Who Qualifies
| Requirement | Details |
|---|---|
| Relationship | Married or in civil partnership |
| Lower earner’s income | Below Personal Allowance (£12,570) |
| Higher earner’s income | Basic Rate taxpayer only (under £50,270) |
Marriage Allowance doesn’t work if the higher earner pays Higher or Additional Rate tax. In those cases, the transferred allowance would still only save Basic Rate tax, but the lower earner still loses their full allowance.
How to Claim
Apply online via HMRC. Once approved, your tax codes adjust automatically and remain in place until you cancel. You can also backdate claims for up to 4 previous tax years — a potential one-off payment of over £1,000.
Tax Reliefs and Allowances
Beyond the Personal Allowance, several other reliefs reduce your income tax bill:
Employment Allowances
| Allowance | Amount | Who Qualifies |
|---|---|---|
| Uniform/work clothing relief | Flat rate (£60–£140/year depending on industry) | Employees who wash or maintain work uniforms |
| Working from home relief | £6/week (£312/year) | Employees required to work from home |
| Professional subscriptions | Actual cost | Fees for HMRC-approved professional bodies |
| Tools allowance | Flat rate varies | Tradespeople who provide own tools |
Savings and Investment Allowances
| Allowance | Amount 2026/27 |
|---|---|
| Personal Savings Allowance | £1,000 (Basic Rate) / £500 (Higher Rate) / £0 (Additional Rate) |
| Dividend Allowance | £500 |
| ISA Allowance | £20,000 |
| Capital Gains Tax Annual Exempt Amount | £3,000 |
Interest earned within ISAs is completely tax-free and doesn’t count toward your Personal Savings Allowance. This makes ISAs the first priority for most savers.
Checking Your Tax Is Correct
HMRC isn’t infallible. Tax code errors, incorrect benefits data, and system delays can all lead to you paying too much — or too little — tax.
Signs Something Might Be Wrong
| Warning Sign | Possible Issue |
|---|---|
| Tax code suddenly changed | Check your PAYE Coding Notice — do you recognise the adjustments? |
| BR or 0T code on your main job | Your employer may not have your correct tax details |
| Much less take-home pay than expected | Check tax code and compare to the bands above |
| P800 letter saying you owe tax | Review before paying — challenge if incorrect |
| Emergency tax deducted | Common when starting a new job — usually corrects automatically |
How to Check
- Your payslip — Confirm your tax code matches your Coding Notice
- Personal Tax Account — Check your income and tax paid at gov.uk
- P60 — Annual summary from your employer; compare to your records
- Our tax calculators — Cross-check expected vs actual deductions
If you’ve overpaid, you may be owed a refund. HMRC often issues these automatically via a P800 cheque, but you can also claim through your Personal Tax Account.
Common Questions
What are the current UK tax bands?
For 2026/27, the Basic Rate band runs from £12,571 to £50,270 (20%), Higher Rate from £50,271 to £125,140 (40%), and Additional Rate above £125,140 (45%). Scotland has six bands with rates from 19% to 48%.
What is the Personal Allowance for 2026/27?
The Personal Allowance is £12,570 — the same as it has been since 2021/22. It’s frozen until at least April 2028. Anyone earning under this amount pays no income tax.
What happens if I earn over £100,000?
Your Personal Allowance reduces by £1 for every £2 over £100,000. By £125,140, you have no Personal Allowance. This creates an effective 60% marginal tax rate on the £100,000–£125,140 band. Pension contributions and Gift Aid can help avoid this trap.
How is Scottish income tax different?
Scotland has six income tax bands instead of three, with rates of 19%, 20%, 21%, 42%, 45%, and 48%. Scottish taxpayers pay slightly more above approximately £28,000, though starter rate payers (£12,571–£14,876) pay 1% less than the rest of the UK.
How do I check if my tax code is wrong?
Compare your tax code (shown on your payslip) to the PAYE Coding Notice HMRC sent you. If they don’t match, contact your employer. If the Coding Notice itself looks wrong, contact HMRC via your Personal Tax Account or by phone.
Can I claim tax back if I’ve overpaid?
Yes. HMRC usually issues automatic refunds via P800 after the tax year ends. You can also claim through your Personal Tax Account, or by phoning HMRC if you believe an error has occurred mid-year.
Related Guides
Hub Connections
Understanding Income Tax
- Income Tax Guide — Comprehensive income tax overview
- UK Tax Brackets 2026/27 — Current rates and bands
- Personal Allowance 2026/27 — Tax-free income explained
- Tax Allowances Guide — All UK tax allowances
- What Happens Over £100K? — The Personal Allowance trap
Tax Codes
- Tax Codes Explained — What your tax code means
- Understanding Your Tax Code — Detailed breakdown
- Tax Code Checker Guide — Check your code is correct
- Why Has My Tax Code Changed? — Common reasons
- Can I Change My Tax Code? — How to update your code
- What If I Get the Wrong Tax Code? — Fixing errors
- Emergency Tax Explained — When and why it applies
- Why Am I Paying Emergency Tax? — Causes and solutions
Scottish and Welsh Income Tax
- Scottish Income Tax Rates Explained — Scotland’s tax bands
- Scotland-Specific Finances Guide — Scottish income tax, LBTT, and devolved policies
- Wales-Specific Finances Guide — Welsh income tax, Land Transaction Tax, and devolved policies
Marriage Allowance
- Marriage Allowance Guide — Full eligibility guide
- Marriage Allowance Explained — How it works
- Marriage Allowance 2026/27 — Current year rates
- Marriage Allowance Calculator — Calculate your saving
- Marriage Allowance Claim Guide — How to apply
Tax Relief
- Tax Relief Guide — All tax reliefs explained
- Working from Home Tax Relief — £312/year claim
- Uniform Tax Relief Guide — Claims for work clothing
- Tax-Free Income Sources — Income you don’t pay tax on
- How Much Can I Earn Tax-Free? — Allowances combined
PAYE and Employment
- PAYE vs Self-Assessment — Which applies to you
Calculators
- Take-Home Pay Calculator — See your net pay
- Marriage Allowance Calculator — Calculate your saving
- Child Benefit Tax Calculator — High Income Child Benefit Charge