Income tax is the single biggest deduction from most people's pay. But the way it actually works isn't that complicated once you see the structure. You don't pay a flat percentage on everything you earn. Instead, your income gets sliced into bands, and each band is taxed at a different rate.
Here's how it breaks down for the 2026/27 tax year (6 April 2026 to 5 April 2027).
Everyone gets a Personal Allowance of £12,570. That's the amount you can earn before paying any income tax at all. It's been frozen at this level since 2021/22, and the government has confirmed it stays frozen until at least April 2028.
So if you earn £25,000 a year, you only pay tax on £12,430 (the bit above your allowance). The first £12,570 is completely tax-free.
Once you've used up your Personal Allowance, your remaining income falls into these bands:
These bands are cumulative. If you earn £60,000, you don't pay 40% on the whole lot. You pay 0% on the first £12,570, then 20% on the next £37,700 (£12,571 to £50,270), then 40% on the remaining £9,730 (£50,271 to £60,000).
Your total tax bill in that example: £0 + £7,540 + £3,892 = £11,432. That's an effective tax rate of about 19%, not 40%.
Let's say you earn £32,000. Your tax calculation looks like this:
Total income tax: £3,886 for the year, or about £324 per month. Your effective rate is 12.1%.
This catches a lot of people off guard. Once your income passes £100,000, you start losing your Personal Allowance. For every £2 you earn above £100K, you lose £1 of allowance.
By the time you reach £125,140, your Personal Allowance has gone entirely. The effect? Between £100,000 and £125,140, your marginal tax rate is actually 60%. You're paying 40% tax plus losing 20% of your allowance. It's a weird quirk that means someone earning £100,000 might be better off putting money into a pension rather than taking the cash.
At £110,000, for instance, you've lost £5,000 of your allowance. That extra tax on the lost allowance is £2,000 (40% of £5,000), on top of the 40% you're already paying on the income itself.
If you live in Scotland, you pay Scottish Income Tax rates instead. These have more bands:
Scottish taxpayers have an "S" prefix on their tax code (like S1257L). The Personal Allowance is the same regardless of where you live in the UK.
Your tax code tells your employer how much of your income is tax-free. The standard code for 2026/27 is 1257L. The number part (1257) is your Personal Allowance divided by 10. The letter (L) means you get the standard allowance with no adjustments.
If you've got benefits in kind, underpaid tax from a previous year, or other adjustments, HMRC will change your tax code to collect or give back money through your pay. We've got a full guide to tax codes if you want the detail.
Most employees never have to think about paying tax directly. Your employer handles it through PAYE (Pay As You Earn). Each month, they calculate your tax based on your code, deduct it, and send it to HMRC. By the end of the tax year, you've paid roughly the right amount.
You'll need to file a self-assessment tax return if you:
The self-assessment deadline is 31 January following the end of the tax year. So for 2026/27, your return is due by 31 January 2028.
A few common ways people pay less tax:
The UK tax year runs from 6 April to 5 April the following year. Nobody really knows why it starts on 6 April. It dates back to 1752 when Britain switched from the Julian to the Gregorian calendar and the Treasury refused to lose 11 days of tax revenue. That oddity stuck.
For payroll purposes, 2026/27 means 6 April 2026 to 5 April 2027. All the rates and thresholds above apply to income earned in this window.
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