A simple, jargon-free guide to how income tax works in the UK — your personal allowance, the tax bands, and how to work out what you actually owe.
Income tax is a tax you pay on most of the money you earn — your salary, profits if you are self-employed, some pensions, and certain savings or investment income above set limits. For most employees in the UK, it is collected automatically through PAYE (Pay As You Earn) before your wages reach your bank account.
Most people can earn a certain amount each tax year before paying any income tax at all. This is called the Personal Allowance. For the 2026/27 tax year it remains at £12,570 for most people. If you earn more than £100,000, your allowance gradually reduces, and it disappears entirely once your income reaches £125,140.
Above your Personal Allowance, income is taxed in bands. Each band only applies to the portion of income that falls within it:
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Imagine you earn £40,000 a year. The first £12,570 is tax-free (Personal Allowance). The remaining £27,430 falls inside the basic rate band, so it is taxed at 20%, giving roughly £5,486 in income tax for the year — before National Insurance is taken into account.
Income tax is only part of the story. Most workers also pay National Insurance contributions, which fund things like the State Pension and the NHS. This is separate from income tax and calculated on its own thresholds, so your total deductions are usually higher than income tax alone.
▶ Use the free UK Income Tax Calculator