Most UK workers pay two separate deductions on their salary: Income Tax and National Insurance. Both are calculated using HMRC's progressive band system — meaning you only pay the higher rate on the portion of income that falls within that band, not your entire salary.
Every UK taxpayer gets a Personal Allowance of £12,570 for 2025-26 — this portion of your income is completely tax-free. Income above that is taxed in bands.
| 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% |
| Band | Taxable income (above £12,570) | Rate |
|---|---|---|
| Starter rate | £12,571 – £15,397 | 19% |
| Basic rate | £15,398 – £27,491 | 20% |
| Intermediate rate | £27,492 – £43,662 | 21% |
| Higher rate | £43,663 – £75,000 | 42% |
| Advanced rate | £75,001 – £125,140 | 45% |
| Top rate | Over £125,140 | 48% |
Scotland sets its own Income Tax bands under devolved powers, but National Insurance is calculated identically across the whole UK.
If you earn over £100,000, your Personal Allowance shrinks by £1 for every £2 you earn above that threshold. By the time your income reaches £125,140, your entire Personal Allowance is gone — meaning every pound is taxed, creating an effective marginal rate of 60% on income between £100,000 and £125,140 for England/Wales/NI taxpayers.
Class 1 employee National Insurance is charged at 0% up to £12,570, 8% between £12,570 and £50,270, and 2% above £50,270. Unlike Income Tax, National Insurance does not have a Personal Allowance taper and the thresholds are the same across all of the UK including Scotland.
On a £40,000 salary: Personal Allowance of £12,570 is tax-free. The remaining £27,430 is taxed at 20% = £5,486 Income Tax. National Insurance: £27,430 above the primary threshold at 8% = £2,194. Total deductions: £7,680. Take-home pay: £32,320 per year, or £2,693 per month.