UK Income Tax Calculator

Understanding UK Income Tax

The UK operates a Pay As You Earn (PAYE) system where employers deduct income tax and National Insurance contributions directly from your salary before you receive it. Understanding how these deductions work helps you plan your finances and maximise your take-home pay.

Personal Allowance & the £100K Trap

Every UK taxpayer receives a Personal Allowance of £12,570 per year — the amount you can earn tax-free. However, once your income exceeds £100,000, this allowance is reduced by £1 for every £2 you earn above that threshold. This creates an effective marginal tax rate of 60% on income between £100,000 and £125,140, as you lose your Personal Allowance while also paying 40% tax. This is commonly known as the “Personal Allowance trap.”

One popular strategy to mitigate this is to increase pension contributions for income above £100,000, which reduces your adjusted net income and preserves your Personal Allowance.

National Insurance Contributions

Class 1 employee National Insurance is charged at 8% on earnings between £12,570 and £50,270 (the Primary Threshold and Upper Earnings Limit), and 2% on earnings above £50,270. Unlike income tax, NI is calculated on a per-pay-period basis, but annual figures provide a useful approximation.

Scottish Income Tax

Since 2017, the Scottish Parliament has had the power to set its own income tax rates and bands. For 2025/26, Scotland has six tax bands compared to three for the rest of the UK. Scottish rates range from 19% (Starter Rate) to 48% (Top Rate), making higher earners in Scotland pay more income tax than their counterparts in England. Your tax code will start with an “S” if you are a Scottish taxpayer.

Student Loan Repayments

Student loan repayments are deducted automatically through PAYE once your income exceeds the relevant threshold. Plan 1 (pre-2012 England/Wales or Northern Ireland, and Scottish loans before 2023) has a threshold of £26,065. Plan 2 (post-2012 England/Wales) has a threshold of £28,470. Plan 4 (Scotland post-2023) has a threshold of £32,745. All three plans charge 9% on income above the threshold. Postgraduate loans are repaid at 6% above £21,000.

Pension Contributions

Workplace pension contributions made under a salary sacrifice arrangement reduce your gross pay before tax and NI are calculated, providing tax relief at your marginal rate plus NI savings. Personal pension contributions receive tax relief at the basic rate automatically, with higher and additional rate taxpayers claiming extra relief through their tax return.