Tax Guides

UK Income Tax Guide

Understand how UK Income Tax works, including PAYE, Personal Allowance, tax bands and how your salary affects your tax bill.

Income Tax PAYE Personal Allowance

Income Tax is one of the main deductions taken from salaries and other forms of income in the UK. Understanding how Income Tax works can help you better interpret your payslip, estimate your take-home pay and make informed financial decisions.

In this guide, we explain what Income Tax is, how PAYE works, what the Personal Allowance means, how tax bands and rates apply, and which factors can affect the amount of tax you pay.

1. What Is Income Tax?

Income Tax is a tax charged by HM Revenue & Customs (HMRC) on most forms of taxable income, including salaries, bonuses, pensions, rental income and certain investment income.

In the UK, most employees pay Income Tax automatically through the Pay As You Earn (PAYE) system. Employers deduct tax from wages before paying your salary.

Income Tax is separate from National Insurance contributions, although both are usually deducted from your pay at the same time.

2. Personal Allowance

The Personal Allowance is the amount of income you can usually earn each tax year before paying Income Tax.

For the current tax year, the standard Personal Allowance is typically used alongside the default tax code 1257L.

If your income exceeds £100,000, your Personal Allowance may gradually be reduced. This is known as the Personal Allowance taper and can create a particularly high effective marginal tax rate.

3. UK Tax Bands and Rates

Income Tax is progressive, meaning different portions of your income are taxed at different rates.

Most taxpayers pay:

  • 0% on income covered by the Personal Allowance
  • 20% basic rate tax
  • 40% higher rate tax
  • 45% additional rate tax

Scottish taxpayers may be subject to different Income Tax bands and rates.

See our Income Tax Bands Guide for the latest thresholds and rates.

4. How PAYE Works

PAYE (Pay As You Earn) is the system used by employers to collect Income Tax throughout the year.

Each payday, your employer uses your tax code and taxable earnings to calculate how much tax should be deducted and paid to HMRC.

This means most employees do not need to manually calculate or pay Income Tax themselves.

5. Tax Codes Explained

Your tax code tells your employer how much tax-free income to apply before calculating PAYE deductions.

The most common tax code is 1257L, but other codes such as BR, D0, D1, NT and K codes may apply depending on your circumstances.

If your tax code is incorrect, you may pay too much or too little tax.

Read our UK Tax Codes Explained guide for more detail.

6. Adjusted Net Income and Important Thresholds

Certain tax rules depend on your adjusted net income rather than your gross salary alone.

This affects:

  • Personal Allowance taper above £100,000
  • High Income Child Benefit Charge
  • Eligibility for certain allowances and reliefs

Pension contributions and Gift Aid donations can reduce adjusted net income and may help preserve tax allowances.

7. Bonuses and Other Taxable Income

Bonuses, commissions, overtime and second-job income are generally subject to Income Tax in the same way as salary.

A bonus may appear to be taxed heavily because it is added to your taxable pay and can push part of your income into higher tax bands.

Use our Bonus Calculator to estimate the net value of a one-off bonus payment.

8. How to Estimate Your Income Tax

To estimate Income Tax accurately, you need to consider:

  • Your salary or total taxable income
  • Your tax code
  • The selected tax year
  • Pension contributions
  • Student loan repayments
  • Additional income or bonuses

SalaryHub’s calculators automatically apply these rules to provide a detailed breakdown of Income Tax, National Insurance and take-home pay.

Estimate Your Income Tax

Use the SalaryHub Salary Calculator to estimate Income Tax, National Insurance and your expected take-home pay.

Use the Salary Calculator

Frequently Asked Questions

What is the Personal Allowance?

The Personal Allowance is the amount of income you can usually earn before paying Income Tax.

What happens if I earn over £100,000?

Your Personal Allowance may be reduced, increasing your effective tax rate until it is fully withdrawn.

Do bonuses count as taxable income?

Yes. Bonuses are treated as taxable pay and may push part of your income into higher tax bands.

Is Income Tax the same as National Insurance?

No. They are separate deductions calculated using different rules and thresholds.

Final Thoughts

Income Tax is a central part of the UK tax system and one of the largest deductions affecting most employees. Understanding how tax bands, allowances and PAYE work can make it much easier to interpret your payslip and plan your finances.

SalaryHub’s calculators and guides are designed to help you understand these rules and estimate your salary after tax with confidence.