UK Income Tax Guide

Income tax in the UK is money you pay to HM Revenue and Customs (HMRC) based on how much you earn. It helps fund essential public services including the NHS, schools, roads, and the welfare system. Most people pay income tax automatically through the PAYE (Pay As You Earn) system, which means it's deducted from your salary before you receive it.

Who Needs to Pay Income Tax?

You pay income tax if you earn more than your Personal Allowance — the amount you can earn tax-free each year. For the 2025-2026 tax year, this is £12,570.

The UK Tax Year

The UK tax year runs from 6 April to 5 April the following year. This is different from the calendar year. The 2025-2026 tax year, for example, runs from 6 April 2025 to 5 April 2026. This affects when new tax rates come into effect and when you need to file tax returns.

The UK uses a progressive tax system with different rates for different portions of your income. Here are the current tax brackets for England, Wales, and Northern Ireland:

Real-World Examples

The Personal Allowance is the tax-free income you can make every year. It's essentially an amount that the government lets you earn without paying any income tax on it. This allowance applies to most people who are resident in the UK.

What Happens if You Earn More Than £100,000?

If your income exceeds £100,000, your Personal Allowance is gradually reduced. For every £2 you earn over £100,000, you lose £1 of your Personal Allowance. This means:

Marriage Allowance

If you're married or in a civil partnership and one of you earns less than the Personal Allowance, you can transfer up to £1,260 of your unused allowance to your partner. This can reduce their tax bill by up to £252 per year. To qualify, the higher earner must be a Basic Rate taxpayer (earning between £12,571 and £50,270).

Blind Person's Allowance

If you're registered blind (or severely sight impaired), you can claim an additional allowance of £3,070 on top of your standard Personal Allowance. This means you can earn £15,640 before paying any income tax.

National Insurance (NI) is separate from income tax but also deducted from your salary. It funds state benefits including the State Pension, unemployment benefits, and the NHS. You pay National Insurance if you're employed and earn more than the Primary Threshold.

How Much National Insurance Do You Pay?

Unlike income tax, which is calculated on your annual income, National Insurance is usually calculated on your earnings in each pay period (weekly or monthly). This means if you have a high-earning month, you might pay more NI that month, even if your annual income stays the same.

Why Do You Pay National Insurance?

Your National Insurance contributions build up your entitlement to:

• • State Pension: You need 35 qualifying years for the full new State Pension
• • Jobseeker's Allowance: If you lose your job
• • Employment and Support Allowance: If you're unable to work due to illness
• • Maternity Allowance: Support when having a baby
• • Bereavement Support: Help when a partner dies

If you took out a student loan to pay for university tuition fees or living costs, you'll repay it through your salary once you start working and earn above a certain threshold. The amount you repay is based on your income, not the size of your loan.

How Student Loan Repayment Works

Your employer will automatically deduct student loan repayments from your salary if you earn above the threshold for your loan plan. The repayment amount is:

• • 9% of your income above the threshold for undergraduate loans (Plan 1, 2, 4, 5)
• • 6% of your income above the threshold for postgraduate loans (Plan 3)

Repayments are automatically deducted along with your income tax and National Insurance.

2025-2026 Student Loan Plans

When Are Loans Written Off?

Student loans aren't lifelong debts - they're written off after a set number of years:

• • Plan 1: 25 years after leaving course
• • Plan 2: 30 years after leaving course
• • Plan 3: 30 years after leaving course
• • Plan 4: 30 years after leaving course
• • Plan 5: 40 years after leaving course

Which Plan Am I On?

Your plan depends on when you started your course and where you lived when you took out the loan. You can find out which plan you're on by checking your Student Finance account or your annual tax summary.

Your tax code tells your employer how much tax-free income you're entitled to and how much tax to deduct from your salary. It's usually shown on your payslip, P45, or P60.

The Most Common Tax Code: 1257L

Other Common Tax Codes

Emergency Tax Codes

If you start a new job and your employer doesn't have your P45, they might use an emergency tax code (like 1257L W1/M1 or 1257L X). This means you're getting the standard Personal Allowance, but it's not spread across the year properly. You might pay too much tax initially, but HMRC will usually adjust this automatically and refund you.

How to Check and Change Your Tax Code

You can check your tax code on:

• • Your payslip (usually near the top)
• • Your P45 (when you leave a job)
• • Your P60 (annual tax summary)
• • Your Personal Tax Account online
• • The HMRC app

Understanding your payslip helps you verify you're being paid correctly and shows exactly where your money goes. Here's what to look for:

If you live in Scotland, you pay the Scottish Rate of Income Tax (SRIT) to the Scottish Government. Scotland has more tax bands than the rest of the UK, with the aim of making the tax system more progressive.

The key difference is that Scotland has a 19% Starter Rate and a 21% Intermediate Rate, and slightly higher rates for higher earners (42% and 47% instead of 40% and 45%). If you live in Scotland, your tax code will start with an 'S' (e.g., S1257L).