Understanding the UK income tax system is essential whether you are employed, self-employed, or running a business. This guide covers the 2025/26 tax year rates — which ran from 6 April 2025 to 5 April 2026 — and explains exactly how income tax is calculated in plain English.
The 2025/26 Income Tax Bands at a Glance
UK income tax operates on a banded system — you pay different rates on different portions of your income. Crucially, you only pay the higher rate on the portion of income that falls into each band — not on your entire income.
| Band | Income Range | Tax Rate | |---|---|---| | Personal Allowance | Up to £12,570 | 0% | | Basic Rate | £12,571 to £50,270 | 20% | | Higher Rate | £50,271 to £125,140 | 40% | | Additional Rate | Over £125,140 | 45% |
These rates apply to England, Wales, and Northern Ireland. Scotland has its own income tax rates which differ from the rest of the UK — particularly at the basic and higher rate thresholds.
The Personal Allowance — What It Means
The personal allowance is the amount you can earn each year completely free of income tax. For 2025/26 it is £12,570.
This means the first £12,570 of your income is tax-free. Only earnings above this threshold are subject to income tax.
Important: The personal allowance tapers away for high earners. For every £2 you earn above £100,000, you lose £1 of personal allowance. This means:
- At £100,000 income, your personal allowance starts reducing
- At £125,140 income, your personal allowance is reduced to zero
- This creates an effective 60% marginal tax rate on income between £100,000 and £125,140
If your income is between £100,000 and £125,140, you may be paying an effective marginal rate of 60% on that portion of your income. This is a significant trap that pension contributions and other allowances can help you avoid — speak to a qualified accountant.
How Income Tax Is Calculated — A Worked Example
This is where many people go wrong. You do not pay 40% on your entire salary just because you earn over £50,270. You pay 40% only on the income above £50,270.
Example: £65,000 salary
| Portion | Amount | Rate | Tax | |---|---|---|---| | Personal Allowance | £12,570 | 0% | £0 | | Basic Rate portion | £37,700 | 20% | £7,540 | | Higher Rate portion | £14,730 | 40% | £5,892 | | Total income tax | | | £13,432 |
On a £65,000 salary, you pay £13,432 in income tax — an effective rate of 20.7%, not 40%.
National Insurance 2025/26
National Insurance (NI) is a separate tax on earnings, often misunderstood as part of income tax. For 2025/26, employees pay:
- 8% on earnings between £12,570 and £50,270 per year
- 2% on earnings above £50,270 per year
Continuing the £65,000 example:
| Portion | Amount | Rate | NI | |---|---|---|---| | Between £12,570 and £50,270 | £37,700 | 8% | £3,016 | | Above £50,270 | £14,730 | 2% | £295 | | Total NI | | | £3,311 |
So on a £65,000 salary, total deductions are £13,432 (income tax) + £3,311 (NI) = £16,743 — leaving a take-home pay of £48,257 per year or approximately £4,021 per month.
🏛Key Thresholds to Know
Several important thresholds affect how much tax you pay:
£12,570 — Personal Allowance. Income below this is tax-free.
£50,270 — Higher Rate threshold. Income above this is taxed at 40% (and NI drops to 2%).
£100,000 — Personal Allowance taper begins. Earn £1 more and you start losing your personal allowance.
£125,140 — Personal Allowance fully withdrawn. All income now taxable. Also the Additional Rate threshold — earnings above this taxed at 45%.
Tax Codes — What They Mean
Your tax code tells your employer how much tax-free income you are entitled to. The most common codes are:
1257L — The standard code for most employees with one job, reflecting the £12,570 personal allowance.
BR — Basic Rate. All income from this job is taxed at 20%. Usually means you have another job where your personal allowance is already used.
D0 — All income taxed at 40%. Applied when HMRC believes you will exceed the higher rate threshold.
K codes — Negative allowance. Used when you have untaxed income or benefits that exceed your personal allowance.
If your tax code looks wrong, contact HMRC or check your Personal Tax Account at gov.uk.
Self-Employed and Self-Assessment
If you are self-employed, you pay income tax through Self Assessment rather than PAYE. The rates are the same, but instead of your employer deducting tax monthly, you file a tax return each year and pay the total due.
Self-employed individuals also pay National Insurance, but through a different route:
- Class 2 NI — currently rolled into Self Assessment. Flat rate of £3.45 per week if profits exceed £12,570.
- Class 4 NI — 9% on profits between £12,570 and £50,270, and 2% above £50,270. (Note: these are slightly different from employee rates.)
The Self Assessment deadline for online filing is 31 January following the end of the tax year. Miss it and you face automatic penalties starting at £100.
👤How to Reduce Your Tax Bill Legally
Several legitimate strategies can reduce the income tax you pay:
Pension contributions. Contributing to a pension reduces your taxable income. If you earn £60,000 and contribute £10,000 to a pension, you are only taxed on £50,000 — keeping you below the higher rate threshold. Higher rate taxpayers get 40% tax relief on pension contributions.
Marriage allowance. If one partner earns below the personal allowance and the other is a basic rate taxpayer, you can transfer £1,260 of personal allowance — saving up to £252 per year in tax.
Gift Aid donations. Charitable donations made under Gift Aid allow the charity to reclaim basic rate tax, and higher rate taxpayers can claim the additional 20% relief through Self Assessment.
Salary sacrifice. Asking your employer to reduce your salary in exchange for benefits (childcare vouchers, cycle to work, additional pension contributions) reduces your taxable income and NI liability.
Working from home allowance. If you work from home, you can claim £6 per week (£312 per year) without receipts, or a proportion of actual household costs.
Useful HMRC Resources
- Personal Tax Account: gov.uk/personal-tax-account — check your tax code, NI record, and tax estimate
- Self Assessment: gov.uk/self-assessment-tax-returns
- PAYE queries: 0300 200 3300
Last updated April 2026 based on 2025/26 tax year rates. Tax rules change regularly — for personalised advice, consult a qualified UK tax adviser or accountant.