Your income is taxed in layers, not at one flat rate. Understanding the bands shows exactly how much of each pound you actually keep.
Most people who discover they have crossed into the 40% band assume their entire salary is suddenly taxed at 40%. It is not. Only the portion of income sitting above the higher-rate threshold attracts the 40% charge; everything beneath it stays taxed at the rate that applied before. That layered logic is the whole point of tax bands, and misunderstanding it can make a pay rise feel more frightening than it really is.
The thresholds below apply across England, Wales and Northern Ireland. Scotland sets its own rates and bands through the Scottish Parliament, so Scottish taxpayers have up to six separate bands.
| Band | Income range | Rate |
|---|---|---|
| Personal Allowance | £0 to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Above £125,140 | 45% |
These thresholds have been frozen since April 2021 and are currently legislated to remain frozen until April 2028. That freeze is quietly dragging more people into higher bands every year as wages rise, a process sometimes called fiscal drag. If your salary has grown even modestly since 2021, there is a real chance a larger share of it now sits in the 40% band than before.
Suppose you earn £60,000 as a sole trader or employee in England during 2025/26. Here is how the tax is actually sliced:
| Slice of income | Amount | Rate | Tax due |
|---|---|---|---|
| Personal Allowance | £12,570 | 0% | £0 |
| Basic rate band | £37,700 (£12,571 to £50,270) | 20% | £7,540 |
| Higher rate band | £9,730 (£50,271 to £60,000) | 40% | £3,892 |
| Total income tax | £11,432 |
Your effective (average) rate across the whole £60,000 is roughly 19%. The marginal rate on your top £9,730 is 40%, but that does not retroactively raise the rate on the £37,700 below it. You can run this calculation for your own income using the TapTax salary tax calculator.
Technically the Personal Allowance sits outside the band structure, but it functions as the floor beneath all of them. For 2025/26 it stands at £12,570. Every individual gets it unless their adjusted net income exceeds £100,000, at which point it tapers away at £1 for every £2 earned over that level. By the time income reaches £125,140 the allowance is completely gone, which is why the additional rate threshold and the point of full allowance withdrawal coincide.
That taper creates a brutal effective tax rate of 60% on income between £100,000 and £125,140, because each extra pound of earnings removes 50p of tax-free allowance while also being taxed at 40%. Anyone whose self-employment profits or employment income edges into that range should think carefully about pension contributions, which reduce adjusted net income and can restore some or all of the allowance.
If you are self-employed, your taxable profit from your business replaces employment income in the calculation. Add any other income sources (rental income, dividends, PAYE employment alongside your freelance work) and the total determines which band each pound sits in. Sole traders also pay National Insurance on top, so your real marginal cost of earning an extra £1,000 in profit is higher than the income tax band alone suggests.
The interaction between different income types follows a set stacking order: non-savings income (salary, profit) sits at the bottom of the bands, savings income sits on top of that, and dividends sit on top of everything. This stacking matters because dividend income carries its own lower rates, but it pushes into whichever band remains after your other income has filled the lower ones.
Imagine you earn £35,000 from a PAYE job and £20,000 profit from freelance work. Combined income is £55,000. After the Personal Allowance of £12,570, taxable income is £42,430. The first £37,700 of that falls in the basic rate tax band at 20%; the remaining £4,730 sits in the higher rate band at 40%. Your employer handles PAYE tax on your salary, but your Self Assessment return reconciles everything and collects the tax on the freelance slice.
Scottish taxpayers face a separate structure set by Holyrood. For 2025/26 Scotland has six bands: starter (19%), basic (20%), intermediate (21%), higher (42%), advanced (45%) and top (48%). The thresholds and rates differ substantially from the rest of the UK. If you live in Scotland, HMRC will flag this on your tax code and apply the Scottish rates automatically, but it is worth knowing the numbers so an unexpected tax bill does not catch you off guard.
Making Tax Digital for Income Tax, which becomes mandatory for sole traders and landlords with qualifying income from April 2026, changes how you report income to HMRC through quarterly updates. It does not change the band thresholds or rates themselves. Your income will still be measured across the same £12,570 to £50,270 to £125,140 ladder. What changes is the frequency and method of reporting, which should mean fewer year-end surprises if you are close to a band boundary.
Tax bands are a ladder, not a cliff edge: crossing into a higher band taxes only the income above the threshold, never the income below it.
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