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How UK Income Tax and National Insurance Work in 2026/27

Rates for 2026/27. Last reviewed 29 October 2026.

Your pay is reduced by two separate deductions before it reaches your bank account: income tax and employee National Insurance. They have different thresholds and different rules, which is why people are often surprised by their payslips.

Income tax in three steps

  1. Start with your income. For most employees that is salary, plus any taxable bonuses or benefits.
  2. Subtract your personal allowance. The standard allowance for 2026/27 is £12,570. Income up to that amount is taxed at 0%.
  3. Apply the bands to what is left. In England, Wales and Northern Ireland the first £37,700 of taxable income is taxed at 20%, income up to £125,140 at 40%, and anything above at 45%.

The bands and allowance are frozen, so pay rises can push more of your income into higher bands over time. This is often called fiscal drag.

The £100,000 to £125,140 trap

Once adjusted net income passes £100,000, your personal allowance is reduced by £1 for every £2 above that level. It disappears completely at £125,140. In that range you pay 40% on the extra income and also lose allowance that would have been taxed at 0%, which makes the effective income tax rate about 60%. Paying into a pension can reduce adjusted net income and may bring some of that back.

National Insurance

Employee National Insurance (Class 1) is charged separately, on earnings over £12,570: 8% up to £50,270 a year and 2% above that. It is not charged on investment income, and it stops being charged on earnings once you reach State Pension age.

Scotland

Scotland sets its own income tax bands and rates, from 19% to 48%. National Insurance is the same as in the rest of the UK. If you live in Scotland, choose that option in the calculator.

Pensions and salary sacrifice

Contributions through salary sacrifice reduce the pay that income tax and National Insurance are calculated on, so the cost to your take-home pay is smaller than the contribution itself. Other pension arrangements treat tax relief differently. If you are unsure which applies to you, ask your payroll team or pension provider.

What this guide does not cover

Self-employment, dividends, savings interest, capital gains, student loan repayments and benefits in kind all have their own rules. For individual advice, speak to a qualified adviser or check GOV.UK.