What is income tax? Rates, bands and how it works

Income tax is the UK government's biggest single source of revenue — roughly a quarter of everything the state collects — and the standard charge on what most people earn. Yet it is built from only three moving parts: an allowance, a set of bands, and a rate on each. Understand those once and every payslip, P60 and P800 for the rest of your life makes sense. This guide builds the whole picture from zero.

What actually counts as income

Income tax applies to most money flowing to you:

• Employment pay — salary, wages, bonuses, overtime, commission, tips through payroll
• Pension income — state pension and private/works pensions in payment
• Self-employment profits — income minus allowable expenses
• Rental income — after allowable deductions
• Savings interest and dividends — with their own special allowances and rates
• Some benefits — taxable state benefits like Carer's Allowance; most means-tested benefits are tax-free

Not income: inheritances, lottery and gambling wins, most gifts, and money you already paid tax on returning to you (like a pension's 25% tax-free lump sum).

The Personal Allowance: everyone's first £12,570

The first £12,570 of income each tax year is tax-free for most people — frozen at this level from 2021-22 through at least 2027-28 (the "fiscal drag" freeze that quietly pulls millions more into tax as wages rise). Above £100,000 of income the allowance dissolves £1 for every £2 earned, reaching zero at £125,140 — the weird little trap we explain below.

Marriage Allowance, Marriage history (Married Couple's Allowance for the pre-1935 generation), and Blind Person's Allowance can modify the figure, but £12,570 is the baseline on every calculator on this site.

The bands: England, Wales and Northern Ireland

For 2025-26 (and frozen into 2026-27):

Band	Income range	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%

The most misunderstood idea in UK tax: only the slice inside each band is taxed at that band's rate. A £60,000 salary does not lose 40% to tax — it loses 20% on £37,700 and 40% only on the £9,730 above the threshold. The total is £11,432 — an effective rate of 19.1%. Your "tax bracket" is never your tax rate.

Scotland's parallel system

Scottish taxpayers (decided by where you live most of the year, and tracked by the S prefix on your tax code) pay Scottish rates on earned income — six bands for 2025-26:

Scottish band	Approximate range above the £12,570 allowance	Rate
Starter	up to £2,827	19%
Basic	to £14,921	20%
Intermediate	to £31,092	21%
Higher	to £62,430	42%
Advanced	to £125,140	45%
Top	above £125,140	48%

Lower earners in Scotland pay slightly less than in England; from roughly £28,800 upwards they pay slightly more. Wales can set its own rates but currently mirrors England exactly.

Worked example: £35,000 salary in 2025-26

1. Personal Allowance: £12,570 at 0% — £0
2. Basic rate: £35,000 − £12,570 = £22,430 at 20% — £4,486
3. Total income tax: £4,486 (12.8% effective)

National Insurance is separate, on the same payslip: 8% of earnings between £12,570 and £50,270 — another £1,794.40 here.

The £100,000 taper: the stealth 60% band

Between £100,000 and £125,140 every extra £1 does two things: pays 40% tax and removes 50p of Personal Allowance — which itself gets taxed at 40%. Combined: a 60% effective marginal rate. £1 earned = 60p to HMRC. This corridor is why pension contributions are powerfully efficient there (they reduce the income figure the taper uses) and why our income tax calculator flags the zone explicitly when your input lands inside it.

National Insurance is not income tax

They share your payslip and little else. NI (8% employee, 6% Class 4 self-employed main rate, with its own thresholds) funds contributory benefits and uses no bands above the upper threshold beyond a flat 2%. Nothing called a "tax refund" from HMRC's employment pages refunds NI — and student loan deductions are a third, separate machine with its own plans and thresholds.

PAYE vs Self Assessment: the two collection engines

• PAYE (employed/pensioned): tax is estimated and deducted every payday using your tax code — favouring convenience over annual accuracy, and later reconciled (the P800 process) or claimed by you.
• Self Assessment (self-employed, landlords, high earners, complex cases): you declare the whole year after it ends, HMRC computes the bill, you pay in January (often with payments on account toward the next year).

Understanding which engine(s) you're on explains every refund story on this site — PAYE's estimation errors create refunds; Self Assessment's CIS deposits create rebates; both are claimable free, direct.