Working out how much tax you pay on a salary is a four-step process. First, apply the Personal Allowance and income-tax bands for your UK nation. Second, calculate employee National Insurance using the relevant pay-period thresholds and NI category. Third, add any student-loan deduction using the plan-specific threshold. Finally, account for pension contributions, salary sacrifice and other payroll adjustments. Most employees never see this — PAYE does it automatically through your tax code — but understanding the maths lets you check your payslip. Run your own numbers through the Salary Calculator in seconds.
The 2026/27 tax year runs from 6 April 2026 to 5 April 2027, and the thresholds below are the ones HMRC uses throughout. Getting comfortable with them means you can predict your take-home pay, spot tax-code errors, and see exactly what a pay rise or a pension contribution does to your net income.
£12,570 is tax-free
20%, 40% and 45% bands
NI at 8% and 2%
The Income Tax Bands in 2026/27
| Band | Rate | Income range |
|---|---|---|
| Personal Allowance | 0% | £0 – £12,570 |
| Basic rate | 20% | £12,571 – £50,270 |
| Higher rate | 40% | £50,271 – £125,140 |
| Additional rate | 45% | Over £125,140 |
The bands are cumulative: a £60,000 salary pays 0% on the first £12,570, 20% on the next £37,700 (up to £50,270) and 40% on the final £9,730. Your Personal Allowance shrinks by £1 for every £2 of income above £100,000 and disappears entirely at £125,140, which creates the well-known 60% effective tax trap in that band. Dividends and savings interest use separate allowances — £500 of dividend allowance and £1,000 (basic rate) or £500 (higher rate) of savings allowance — so the bands above apply to earnings and pensions first.
The annual bands are a useful explanation, but payroll usually works by pay period. A monthly employee receives a slice of the allowance and thresholds each month under the tax code, with cumulative codes correcting earlier pay where the employer has the required information. A weekly or fortnightly employee uses different period thresholds. A bonus, commission payment, holiday pay or taxable benefit can therefore change the deductions in one payslip even when the annual estimate looks stable. Compare like with like: annual gross pay, tax code, pay frequency and the date the extra payment was processed.
National Insurance
Employee National Insurance is charged on earnings, not on total income:
| NI band | Rate | Earnings range |
|---|---|---|
| Primary threshold | 0% | £0 – £12,570 |
| Main rate | 8% | £12,571 – £50,270 |
| Higher rate | 2% | Over £50,270 |
National Insurance is calculated per pay period, which is why a one-off bonus in a single month can push a pay period into the 2% band even if your annual earnings stay in the 8% range — at year end HMRC does not refund the difference. Employers also pay the applicable 2026/27 secondary NI rate, normally 15% for category A earnings above the secondary threshold, subject to category-specific rules.
Student Loan Repayments
If you have a student loan, repayments run at 9% of earnings above your plan threshold, collected through PAYE alongside tax and NI:
| Plan | Repayment threshold | Rate |
|---|---|---|
| Plan 1 | £26,900 | 9% |
| Plan 2 | £29,385 | 9% |
| Plan 4 | £33,795 | 9% |
| Plan 5 | £25,000 | 9% |
A Plan 2 borrower earning £35,000 repays 9% of £5,615 — about £505 a year — on top of tax and NI. Loan repayments are not tax-deductible; they reduce take-home pay until the balance is written off under the applicable loan terms.
Savings, Dividends and Other Income
Not all income is taxed through the same bands. Savings interest gets its own allowances: the first £1,000 of interest is tax-free for basic-rate taxpayers, £500 for higher-rate taxpayers and nothing for additional-rate payers, plus a £5,000 starting rate for savings that can apply where other income is low. For 2026/27, dividends have a £500 allowance, with 10.75%, 35.75% and 39.35% charged on the excess in each band. These allowances sit on top of the Personal Allowance, so someone earning £30,000 with £800 of bank interest pays no tax on the interest at all. The order matters too: earnings and pensions use the Personal Allowance first, then savings income, then dividends, which is why the calculation always starts with employment or pension income before layering investment income on top.
Worked Examples
Example 1: £35,000 salary. Personal Allowance of £12,570 leaves £22,430 taxable at 20%.
| Component | Calculation | Amount |
|---|---|---|
| Income tax | £22,430 × 20% | £4,486 |
| Employee NI | (£35,000 − £12,570) × 8% | £1,794 |
| Student loan (Plan 2) | (£35,000 − £29,385) × 9% | £505 |
| Total deductions | £6,785 | |
| Take-home pay | £28,215 |
Example 2: £60,000 salary. Now the higher-rate band applies to £9,730 of income, and NI drops to 2% above £50,270.
| Component | Calculation | Amount |
|---|---|---|
| Income tax | £37,700 × 20% + £9,730 × 40% | £11,432 |
| Employee NI | £37,700 × 8% + £9,730 × 2% | £3,211 |
| Total deductions | £14,643 | |
| Take-home pay | £45,357 |
The effective tax rate on the £60,000 salary is 19.1% — the headline 40% band only ever applies to the slice above £50,270, which is why effective rates stay well below marginal rates.
Scottish Taxpayers Use Different Bands
If you live in Scotland, the bands above are replaced by Scottish rates set by the Scottish Government: for 2026/27, 19% applies up to £3,967 of taxable income, 20% to £16,956, 21% to £31,092, 42% to £62,430, 45% to £125,140 and 48% above that. The Personal Allowance and the £100,000 taper still work in the same way, and National Insurance and student loans are UK-wide, so the main difference is the income tax bands applied to non-savings, non-dividend income. If you work in England but live in Scotland, or split time between the two, the residence rules decide which bands apply.
Tax Codes and PAYE
PAYE uses your tax code to spread the Personal Allowance across the year. The standard code 1257L means £12,570 of annual allowance, divided into monthly or weekly tax-free amounts. Codes ending in L are standard, M and N are marriage allowance codes, K means you owe tax on top of your allowance, and BR means all income is taxed at 20% — often seen on second jobs. If your code is wrong, your take-home pay is wrong too, so check the code on your payslip against your circumstances, especially after changing jobs or starting a second role.
An emergency or non-cumulative code can produce a temporary result that is not the same as the final annual liability. When changing jobs, give the new employer the correct starter information and check that the leaving details reach HMRC. A second job may use BR, D0 or D1 depending on the information HMRC holds, but the code is not a statement that the second job is permanently taxed at that rate. Taxable benefits can also be reflected in a code before or after the employer reports them. Query the coding notice, not just the net-pay number.
The payslip should be reconciled in layers: gross taxable pay, pension or salary-sacrifice deductions, taxable benefits, Income Tax, employee NI, student or postgraduate loan deductions and other authorised deductions. Employer NI is a business cost and does not reduce the employee's take-home pay. A calculator that includes only salary cannot reproduce a payslip containing benefits, attachment orders, cycle-to-work deductions or a different NI category.
Keep the payslip, coding notice, P60 and student-loan plan information together when checking a year-end position. A monthly estimate can differ from the final annual result because payroll thresholds operate per pay period and bonuses may be paid irregularly.
What Reduces Your Tax Bill
Pension contributions are the biggest lever: salary-sacrifice contributions reduce the gross figure PAYE sees, cutting income tax, NI and any student loan repayment together. Personal pension contributions get basic-rate relief added to the fund, with higher-rate relief claimed on your return. Gift Aid donations extend your basic rate band, and the marriage allowance lets a lower-earning spouse transfer £1,260 of unused allowance. Each of these works differently, but all of them reduce the income figure HMRC tests against the bands above.
Do not treat every deduction as tax relief. A pension contribution, salary sacrifice, Gift Aid payment, student-loan repayment and childcare or benefit deduction have different legal bases. Salary sacrifice changes contractual pay and may affect employment rights, pensionable pay or loan calculations; a personal pension payment usually does not reduce the gross salary on the payslip even though it may generate relief at source. Use the relevant provider and HMRC records when checking the annual position.
Action Plan for 2026/27
Check your take-home pay
- 1Confirm your tax code on your latest payslip — the standard 1257L means a full £12,570 allowance.
- 2Run the [Salary Calculator](/tools/salary-calculator) with your gross pay, NI category and student loan plan.
- 3Compare the calculator's estimate with your actual payslip and query any mismatch with payroll.
- 4If you are near £50,270 or £100,000, model a pension contribution to see the marginal-rate saving.
- 5Review your code again after any pay rise, bonus or job change to avoid surprises.
Frequently Asked Questions
How is income tax calculated on a salary?
What is the difference between marginal and effective tax rate?
How much National Insurance do I pay?
Does a student loan repayment reduce my tax?
What is the postgraduate loan repayment threshold for 2026/27?
Can salary sacrifice reduce my student loan repayment?
How are dividends taxed in the UK in 2026/27?
What is the Personal Savings Allowance in 2026/27?
What does the 1257L tax code mean?
Why is my take-home different from my colleague’s on the same salary?
How can I reduce the tax I pay?
Does my tax code include benefits from my employer?
Get your exact take-home figure with the Salary Calculator, then read the Income Tax Bands 2026/27 guide, the National Insurance 2026/27 guide and the Student Loan Repayment guide for the details behind each deduction.
Official sources
Related Guides
National Insurance 2026/27 — Rates, Thresholds & Self-Employed Classes
National Insurance 2026/27: employee Class 1 at 8% and 2%, employer NI at 15%, Class 2 and Class 4 for the self-employed, and how thresholds are calculated.
Income Tax Bands 2026/27 — UK Rates, Allowances & Examples
UK income tax bands for 2026/27: Personal Allowance, basic, higher and additional rates, the £100,000 taper and Scottish bands.
Inheritance Tax 2026/27 — Nil Rate Band, Residence NRB & 40% Rate
Inheritance Tax for 2026/27: the £325,000 nil rate band, £175,000 residence nil rate band, 40% rate, transferable allowances for couples and the £2m taper.
Review notes and assumptions
Updated 2026-09-21
Assumptions
- The calculation depends on nation, tax code, pay frequency, NI category, student-loan plan, pension contributions and other payroll adjustments.
- Examples are indicative payroll illustrations; the employer's payroll calculation and HMRC records control an individual payslip.