CalculateUK Income Tax & National Insurance Explained
Two separate deductions show up on every UK payslip. Here's what each one actually is, and why the numbers rarely change year to year right now.
Two deductions, one payslip
If you're employed in the UK, two separate amounts come off your pay before you see it: Income Tax and National Insurance (NI). They're calculated differently, fund different things, and it's worth knowing where each line on your payslip actually comes from rather than treating "tax" as one lump deduction.
Income Tax bands for 2026-27
For the 2026-27 tax year, the Personal Allowance is £12,570 — the amount you can earn before Income Tax applies at all. Above that, the Basic Rate of 20% applies up to £50,270, the Higher Rate of 40% applies from there up to £125,140, and the Additional Rate of 45% applies above £125,140. These figures are for England, Wales, and Northern Ireland; Scotland sets its own income tax bands and rates, so a Scottish taxpayer's numbers will differ — check gov.uk's Scottish Income Tax page for the current Scottish figures specifically.
The £100,000 trap
Between £100,000 and £125,140, something unusual happens: your Personal Allowance itself shrinks by £1 for every £2 you earn above £100,000, until it hits zero at £125,140. Because you're losing tax-free allowance and paying 40% tax on the income that replaces it at the same time, the effective marginal rate in that band works out well above the headline 40% rate — often cited as around 60% on the income within that specific range. It's one of the more counterintuitive parts of the UK system, and worth knowing about if a raise, bonus, or pay rise puts you anywhere near £100,000.
National Insurance: what you actually pay
For most employees (Category A), Class 1 National Insurance works in its own bands: 0% on earnings up to the Primary Threshold (£242/week, £1,048/month, £12,570/year), 8% between the Primary Threshold and the Upper Earnings Limit (£967/week, £4,189/month, £50,270/year), and 2% on anything above that. Notice that the Primary Threshold lines up with the Income Tax Personal Allowance, and the Upper Earnings Limit lines up with the higher-rate threshold — the two systems are aligned at those points, even though they're calculated separately.
How PAYE puts it together
Pay As You Earn (PAYE) is the mechanism, not a separate tax: your employer calculates and deducts both Income Tax and Class 1 NI directly from your pay each period, using your tax code to know how much tax-free pay to allow first. For 2026-27, the standard tax code for someone with the full Personal Allowance and no adjustments is 1257L, matching the £12,570 figure. If your tax code looks unfamiliar or your take-home pay changes unexpectedly, it's usually worth checking your tax code before assuming something's wrong with your pay.
Why these numbers keep staying the same
You may notice the Personal Allowance and rate thresholds haven't moved much in recent years. The government has frozen several of these thresholds rather than increasing them in line with inflation or wage growth — a policy sometimes called "fiscal drag," because as wages rise and the thresholds don't, more income gradually falls into higher bands even without any rate actually going up. Check gov.uk directly for how long the current freeze is set to run, since this is a policy setting that can change at a future Budget.
Frequently asked questions
Do I need to file a tax return if I'm employed?+
Usually not. PAYE handles standard employment income automatically. You'd typically only need to file a Self Assessment return if you have additional income sources, are self-employed, or your situation is otherwise more complex.
What does my tax code actually mean?+
It tells your employer how much tax-free pay to give you before deducting tax. 1257L reflects the standard £12,570 Personal Allowance; letters and numbers change if you have other adjustments, multiple jobs, or an emergency code applied.
Why did my take-home pay change even though I didn't get a raise?+
Tax code corrections, benefit-in-kind changes, pension contribution changes, or moving into a different NI or tax band due to a bonus can all shift take-home pay without a base salary change.
Is National Insurance the same as a pension contribution?+
No — NI funds the State Pension and other state benefits collectively, but it isn't a personal pension pot. Workplace pension contributions are a separate deduction, shown separately on your payslip.
Sources
Disclaimer: This guide is for general educational purposes and does not constitute financial, tax, legal or medical advice. Rules, rates and thresholds change over time — confirm current figures with the official sources linked above or a qualified professional before making a decision.