How UK Income Tax Works
The UK operates a progressive tax system, meaning you pay different rates of tax on different portions of your income. The system is designed so that higher earners contribute more whilst protecting those on lower incomes.
Tax Year 2025/26 Rates and Allowances
Personal Allowance (Tax-free)
£0 – £12,570
Basic Rate
20% on £12,571 – £50,270
Higher Rate
40% on £50,271 – £125,140
Additional Rate
45% on income over £125,140
National Insurance Contributions
National Insurance is separate from income tax and helps fund the NHS, state benefits, and state pension. Class 1 National Insurance rates for employees are:
Below £12,570 per year
0%
£12,570 – £50,270 per year
12%
Above £50,270 per year
2%
Student Loan Repayments
Student loan repayments are automatically deducted from your salary if you earn above certain thresholds:
Plan 1 (9% above £24,990)
Started before 2012
Plan 2 (9% above £27,295)
Started 2012-2023
Plan 5 (9% above £25,000)
Started from 2023
Postgraduate (6% above £21,000)
Masters/PhD loans
Frequently Asked Questions
How accurate is this tax calculator?
This calculator provides estimates based on current HMRC rates and allowances for the 2025/26 tax year. Actual tax liability may vary depending on individual circumstances, additional income sources, or changes to tax legislation. Always consult HMRC’s official calculators or a qualified accountant for definitive calculations.
When does the UK tax year run?
The UK tax year runs from 6 April to 5 April the following year. The current tax year (2025/26) runs from 6 April 2025 to 5 April 2026.
What is the personal allowance?
The personal allowance is the amount you can earn each year without paying income tax. For 2025/26, this is £12,570 for most people. However, it reduces by £1 for every £2 you earn over £100,000.
Do I need to pay National Insurance if I’m over 65?
No, you stop paying National Insurance contributions once you reach state pension age, even if you continue working. However, you still pay income tax on earnings above the personal allowance.
How do Scottish tax rates differ?
Scotland has different income tax rates and bands compared to England, Wales, and Northern Ireland. Scottish residents pay Scottish Income Tax, which has more tax bands and different rates, whilst National Insurance remains the same across the UK.
What expenses can reduce my taxable income?
Common deductions include pension contributions, some work-related expenses (uniforms, tools, travel), charitable donations through Gift Aid, and professional fees or subscriptions required for your job.
When do I need to file a Self Assessment?
You typically need to complete a Self Assessment if you’re self-employed, have multiple income sources, earn over £100,000, receive rental income, or have other untaxed income above £1,000 per year.
Tax Planning Tips
Maximise Your Pension Contributions
Contributing to a pension scheme reduces your taxable income and provides tax relief. Basic rate taxpayers get 20% tax relief, whilst higher rate taxpayers can claim additional relief through Self Assessment.
Salary Sacrifice Schemes
Many employers offer salary sacrifice schemes for benefits like childcare vouchers, cycle-to-work schemes, or additional pension contributions. These reduce your gross salary before tax calculations, potentially saving both income tax and National Insurance.
Marriage Allowance
If you’re married or in a civil partnership and one partner earns less than £12,570 whilst the other is a basic rate taxpayer, you can transfer £1,260 of unused personal allowance, potentially saving £252 per year.
ISA Allowances
Maximise your annual ISA allowance (£20,000 for 2025/26) to shelter savings and investments from tax. This includes Cash ISAs, Stocks & Shares ISAs, and Innovative Finance ISAs.
References
HM Revenue and Customs. (2025). Income Tax rates and Personal Allowances. GOV.UK. Available at: https://www.gov.uk/income-tax-rates
HM Revenue and Customs. (2025). National Insurance rates and categories. GOV.UK. Available at: https://www.gov.uk/national-insurance-rates
HM Revenue and Customs. (2025). Student loan repayment rates and thresholds. GOV.UK. Available at: https://www.gov.uk/repaying-your-student-loan
The Institute for Fiscal Studies. (2025). Green Budget 2025: Tax and spending challenges. London: IFS. Available at: https://ifs.org.uk/green-budget
Low Incomes Tax Reform Group. (2025). Working out your tax. Available at: https://www.litrg.org.uk/tax-guides/tax/income-tax/working-out-your-tax
