It is the single biggest tax most people pay, yet the rules behind it, allowances, bands, and devolved rates, are widely misunderstood. Here is how it actually works in 2025/26.
Income tax raises more money for the UK government than any other single tax, and almost every working adult pays it. Yet ask people how it actually works, where their allowance comes from, why a pay rise sometimes feels disappointing, or why Scotland is different, and the answers get vague fast.
Income tax is charged on a wide range of income: employment earnings, self-employment profit, most pensions, rental income, and savings and dividend income above their own separate allowances. The first thing the system does is shield part of your income with the Personal Allowance, £12,570 in 2025/26. Only what you earn above that is taxable.
Above the allowance, your income passes through a series of tax bands, and a higher rate applies to each successive slice. Crucially, moving into a higher band does not raise the rate on your whole income, only on the portion that falls within that band. This is why a pay rise never leaves you worse off overall, despite the common myth.
For taxpayers in England, Wales and Northern Ireland, the 2025/26 structure is:
| Band | Taxable income | 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% |
These thresholds are frozen until 2028, so as wages rise, more income is dragged into higher bands, an effect known as fiscal drag.
Income tax on earnings is devolved to the Scottish Parliament, so Scottish taxpayers (identified by an S prefix on their tax code, such as S1257L) follow a different set of bands in 2025/26: a 19% starter rate, a 20% basic rate, a 21% intermediate rate, a 42% higher rate, a 45% advanced rate from £75,000, and a 48% top rate above £125,140. The Personal Allowance itself remains a UK-wide £12,570, but the rates applied above it diverge. Wales has the power to set Welsh rates (Welsh taxpayers carry a C prefix), but for 2025/26 Welsh rates match those of England and Northern Ireland.
Maya earns £60,000 in 2025/26 in England. Her first £12,570 is covered by the Personal Allowance and taxed at 0%. The next slice, from £12,571 to £50,270 (£37,700), is taxed at the basic rate of 20%, giving £7,540. The remaining £9,730 (from £50,271 to £60,000) falls in the higher-rate band and is taxed at 40%, giving £3,892.
Her total income tax is £7,540 + £3,892 = £11,432, an effective rate of about 19% across her whole salary, even though her top (marginal) rate is 40%. National Insurance is charged separately. Run any salary through the income tax and salary calculator to see the full breakdown including take-home pay.
Moving into the higher-rate band only taxes the pounds above the threshold, never your whole income. A pay rise always leaves you better off.
Most employees and pensioners never handle income tax directly; it is deducted automatically through PAYE before they are paid, based on their tax code. The self-employed, landlords, and people with significant untaxed income instead report it through Self Assessment after the tax year ends and pay HMRC directly. From April 2026, Making Tax Digital for Income Tax begins phasing in, requiring sole traders and landlords with qualifying income over £50,000 to keep digital records and send HMRC quarterly updates rather than a single annual return.
TapTax connects to your bank, categorises expenses automatically, and submits quarterly updates to HMRC. Free plan, no card required.
