Understanding your income tax is crucial for financial planning, whether you’re employed, self-employed, or receiving multiple income sources. One of the most common questions people ask at the start of every tax year is: “How much Tax will I pay?” To make things easier, you can use a UK Income Tax Calculator to estimate your tax liability quickly and accurately.
UK income tax for the 2025–26 financial year depends on how much you earn and where in the UK you live. Most taxpayers in England, Wales, and Northern Ireland benefit from a £12,570 personal allowance, meaning this portion of your income is completely tax-free. Once your earnings exceed this threshold, tax rates begin at 20%, rising to 40% and 45% depending on total income. Scotland, however, runs a separate system with its own income tax bands and rates.
This guide goes beyond just the basics. You’ll get a step-by-step walkthrough of how tax is calculated in 2025–26, helping you improve payroll management, enhance employee financial planning, and make more confident long-term money decisions. Whether you’re checking your payslip, budgeting for expenses, or planning investments, this detailed breakdown will give you clarity and confidence about your UK tax obligations.
Why is understanding UK Income Tax important for the UK Businesses?
UK income tax can be confusing but figuring out “how much tax will I pay?” is important for both individuals and businesses. This is because how does tax work isn’t just a simple calculation.
- For employees: Finding out how your tax is calculated helps you answer your query, “How much tax will I pay?” and shows how much money you’ll take home after deductions. This makes budgeting easier and stops last-minute problems.
- For businesses: Being clear on tax rules helps you manage payroll correctly, stay on HMRC’s good side and keep your employees confident with clear pay slips. Understanding how salary tax is calculated is key to this.
- For self-employed and contractors: Knowing your tax responsibility makes it easier to save the right amount, claim your expenses and submit your tax returns without any stress.
A thorough income tax calculation for salary is essential. - For anyone dealing with tax: Checking how to work out income tax in the UK helps you plan ahead and keep your finances in order.
If you run a business or work for yourself, then tax information is very useful. It makes filing tax returns easier and money management is better.
Key terms to know
Before beginning the calculations, you must understand these simple tax terms used in the UK.
1. Personal Allowance
This is a part of your income that is purely tax free. For the 2025-26 tax year, this amount is £12,570.
2. Taxable Income
This is the money which you have to pay tax. To calculate it, you have to subtract your personal allowance and other deductions from your gross income.
The formula for taxable income is:
Taxable Income = Gross Annual Income – Personal Allowance
3. Income Tax Rates and Bands
These are different tax percentages that apply to different parts of your income. The UK uses a system where higher tax rates only apply to the extra money you earn in higher income brackets.
4. PAYE (Pay As You Earn)
This is the way in which the employers subtract income tax and National Insurance Contributions (NICs) directly from your salary before you pay it. This happens automatically every month.
5. National Insurance Contributions (NICs):
Separate from Income Tax and funding certain benefits; important for take‑home pay.
Step-by-step: How to calculate UK Income Tax
After understanding the key terms, let’s see how to calculate tax. This will show you how to calculate income tax in the UK manually.
Step 1: Calculate Taxable Income
Find taxable income by subtracting the Personal Allowance (and other applicable deductions) from gross annual income. Note the Personal Allowance reduces as income rises and becomes zero once income is high enough.
Formula: Taxable Income = Gross Annual Income – Personal Allowance
High‑Earner Trap: Personal Allowance gradually reduces if total income is more than £100,000. It reduces by £1 for every £2 above £100,000 and ends completely at £125,140. See: the allowance ends completely when £125,140 is reached.
Example:
- Gross Annual Income: £45,000
- Personal Allowance: £12,570
- Taxable Income = Gross Annual Income (£45,000) – Personal Allowance (£12,570)
- Taxable Income = £32,430
The £32,430 is the income that will be taxed by applying the bands. Knowing how to calculate taxable salary is easy once you understand this.
Note: The standard Personal Allowance for 2025–26 remains £12,570 and is tapered by £1 per £2 of adjusted net income above £100,000 until nil at £125,140.
Step 2: Apply Tax Bands
The UK’s progressive tax system ensures that you only pay a higher rate on the portion of your income that falls in the higher band. The highest rate is not applied to your entire salary.
Key question: “When do you get taxed 40?”
Answer: Only on the income above the £50,270 threshold in England, Wales and Northern Ireland.
Tax Rates for England, Wales & Northern Ireland (2025–26)
| Tax Band | Taxable Income | Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 to £50,270 | 20% |
| Higher Rate | £50,271 to £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Calculation in our example: The taxable income of £32,430 is completely in the basic rate band. This is a simple example of calculating UK tax.
Clarification: These bands apply to non-savings, non-dividend income for taxpayers in England, Wales, and Northern Ireland; Scottish taxpayers use different bands for non-savings, non-dividend income.
Scotland has a different tax structure. For professionals living there, the rates are as follows:
| Tax Band | Taxable Income | Tax Rate |
|---|---|---|
| Starter Rate | £12,571 to £15,397 | 19% |
| Scottish Basic Rate | £15,398 to £27,491 | 20% |
| Intermediate Rate | £27,492 to £43,662 | 21% |
| Higher Rate | £43,663 to £75,000 | 42% |
Also applicable in 2025–26: Advanced Rate £75,001 to £125,140 at 45%, and Top Rate over £125,140 at 48%.
Step 3: Consider Additional Deductions (for take‑home)
Take-home pay isn’t just affected by income tax. Other compulsory deductions are also important.
National Insurance Contributions (NICs):
This is a separate calculation from income tax:
- 8%: on earnings from £12,570 to £50,270
- 2%: on earnings over £50,270
NICs example for a £45,000 salary:
- Chargeable NICs earnings = £45,000 − £12,570 = £32,430
- Employee NICs = £32,430 × 8% = £2,594.40
SOURCE: National Insurance rates
For 2025–26, employee Class 1 main rate is 8% between the Primary Threshold (£12,570) and the Upper Earnings Limit (£50,270), then 2% above the UEL; these are applied via PAYE.
Student Loan Repayments:
Repayments apply to income above plan‑specific thresholds and are collected via PAYE (for employees).
| Repayment Plan | Annual Threshold | Repayment Rate |
|---|---|---|
| Plan 1 | £26,065 | 9% |
| Plan 2 | £28,470 | 9% |
| Plan 4 | £32,745 | 9% |
| Postgraduate Loan | £21,000 | 6% |
SOURCE: Student loans guide to terms and conditions 2025 to 2026
All deductions are automatically handled by your employer through the PAYE system.
Repayments are calculated on income above the relevant plan threshold at the stated percentage and are collected through PAYE alongside tax and NICs.
What are Tax Overpayments and Refunds?
It is very common that people pay more tax. The main reason is that during a job change or emergency, a tax code is applied. I have seen that many people do not know about it and do not get their money back.
How to know if you will get a refund or not?
It’s common to overpay tax, especially after job changes or when an emergency tax code is used. Many miss out on refunds.
- How to know if a refund is due: HMRC automatically checks after the tax year. From June to November, a P800 tax calculation letter is issued when too much tax was paid.
- Best practice: Ensure the correct tax code to avoid overpayments.
How to claim?
The P800 letter contains instructions on how to claim your refund:
- Online through your Personal Tax Account.
- Or can come automatically as a cheque.
- The quickest way is to claim online through a Government Gateway account; refunds often arrive within five working days.
Claiming a tax refund is a valuable financial skill, but the best approach is to be on the correct tax code in the first place to avoid overpayments.
Important Role of Tax Code
The tax code is a short combination of letters and numbers that tells your employer precisely how much tax to deduct from your salary. The most commonly used tax code is 1257L.
- Number portion (1257): This represents your tax-free personal allowance (£12,570, with the last digit removed).
- Letter (L): This indicates that you are eligible for the standard personal allowance.
Other Common Codes:
- BR (Basic Rate): Used for a second job, meaning all income from that source is taxed at 20%.
- D0 (Higher Rate): Taxes all income at the 40% higher rate.
- K: A “negative” tax code used when untaxed income (e.g., benefits-in-kind) is greater than your personal allowance.
- S or C: Prefixes indicating you are a Scottish (S) or Welsh (C) taxpayer.
How a tax calculator helps?
Manual calculations needs detailed understanding, but using a reliable tax calculator saves time and ensures accuracy. For business owners, this is an essential tool to check payroll and give employees a clear idea. A good UK tax calculator will give you a full breakdown.
What to look for in a tax calculator:
- It should use the current 2025-26 tax rates and allowances.
- It should include calculations for National Insurance and student loans.
- It should allow for different tax codes and pension contributions to provide a complete picture of take-home pay.
How to use it:
The HMRC tax calculator or another trusted online income tax calculator in the UK is the most reliable option.
Here are the steps:
- Input your Gross Income: Enter your total annual, monthly or weekly salary or profit before any deductions.
- Add deductions: Provide details on any applicable pension contributions, student loan repayments or other benefits.
- Specify your location: Select your tax residency (England, Wales, Scotland or Northern Ireland), as rates differ.
- View the breakdown: The calculator will instantly display a breakdown of your tax and National Insurance contributions, as well as your final take-home pay.
This income tax calculator is particularly helpful when comparing new job offers, when negotiating salaries and when double-checking monthly pay slips. From a business perspective, it’s also useful for keeping payrolls accurate.
Worked examples (EWNI, standard code, no student loan)
- £35,000 salary
- Personal Allowance: £12,570
- Taxable income: £22,430
- Income Tax: £22,430 × 20% = £4,486
- Add NI per thresholds to get take‑home (use a calculator for precise period‑based NI).
- £60,000 salary
- Personal Allowance: £12,570 (no taper impact below £100k)
- Taxable income: £47,430
- Income Tax: £37,700 × 20% = £7,540; £9,730 × 40% = £3,892; Total = £11,432
- Add NI to estimate net; a calculator will handle monthly and annual breakdowns.
Deductions that reduce taxable income
- Pension contributions: Can reduce taxable pay (net pay method) or provide relief (relief at source).
- Gift Aid: Extends basic rate band and can reduce adjusted net income (helpful for PA taper).
- Allowable employment expenses: Unreimbursed allowable costs may reduce taxable income.
- Trading losses (self‑employed): Can offset income subject to rules.
Note: EWNI stands for England, Wales, and Northern Ireland.
Scotland overview
Scottish taxpayers face different thresholds and marginal rates for employment income, so total tax and effective marginal rates can differ meaningfully from EWNI. Always select Scottish residency when using calculators and apply Scottish bands to employment income.
Comparison table (at a glance)
| Topic | EWNI | Scotland |
|---|---|---|
| Personal Allowance | £12,570 standard; taper above £100,000 | £12,570 standard; taper above £100,000 |
| Core bands | 20%, 40%, 45% | 19%, 20%, 21%, 42%, 45%, 48% |
| 40% threshold | Above £50,270 | Higher threshold differs; multiple bands before 42% |
Conclusion
Understanding the UK tax system is important for everyone, whether you’re an employee or a business owner. Knowing your tax-free personal allowance and the different tax bands is the first step to financial management. Manual calculations make good sense, but the easiest and most reliable way is to use a modern UK income tax calculator. When you enter your income, deductions and tax codes correctly into these tools, they give you a complete picture of your finances and answer the question, “how much tax will I have to pay?”
Ultimately, having up-to-date information and using the right tools helps you take better control of your income and plan for a secure future.
Confused by tax codes and surprise deductions on payslips? Let’s fix it today by connecting with our experts.
FAQs
How much tax will I pay on my salary in the UK?
It depends on total earnings, tax‑free allowance, residency (EWNI vs Scotland), and deductions; employers deduct Income Tax and NI via PAYE.
What are the UK income tax rates and bands for 2025/26?
The tax rates in England, Wales and Northern Ireland are 20% (basic), 40% (higher) and 45% (additional). There are six different rates in Scotland, ranging from 19% to 48%.
What is the personal allowance and how much of my income is tax-free?
Personal Allowance is the part of your income that is not subject to Income Tax. For 2025/26 it is £12,570.
How is income tax calculated on salary and wages?
Your employer uses the Pay As You Earn (PAYE) system. They calculate tax at the official rates on your “taxable income,” minus your personal allowance and other deductions.
What is the formula for taxable income in the UK?
Taxable Income = Gross Annual Income − Personal Allowance
How do I calculate my income tax manually?
First, find your taxable income. Then apply the tax rate to that amount. Example: on a £45,000 salary, your taxable income is £32,430, which will be charged the 20% basic rate.
Where can I find the official HMRC tax calculator?
HMRC’s official tools are available on the Government of the UK website. They can be found online by searching for “HMRC tax calculators.”
When do I start paying 40% tax in the UK?
In England, Wales, and Northern Ireland, you start paying tax at the 40% higher rate on income above £50,270.
What deductions reduce my taxable income?
The main deduction is your personal allowance. Other deductions that reduce your taxable income are pension contributions and Gift Aid donations.
How do tax refunds and overpaid PAYE work?
If you’ve overpaid your tax (often because of the wrong tax code), HMRC will send you a P800 tax calculation letter. This letter tells you how to claim a refund online or an automatic cheque will arrive.
Are Scottish tax rates different from the rest of the UK?
Yes, Scotland has its own tax bands and rates for salary and wages income, which are different from England, Wales, and Northern Ireland.
What’s the difference between Income Tax and National Insurance?
Income tax is a general tax that funds public services. National Insurance Contributions (NICs) are a separate payment that entitles you to certain state benefits, such as a State Pension. Both are important deductions. You should calculate income tax and NI together to know your final take-home pay.
Parul is a dedicated writer and expert in the accounting industry, known for her insightful and well researched content. Her writing covers a wide range of topics, including tax regulations, financial reporting standards, and best practices for compliance. She is committed to producing content that not only informs but also empowers readers to make informed decisions.
