UK Tax & Salary FAQ — 2026/27 Tax Year

PAYE (Pay As You Earn) is the system by which UK employers deduct Income Tax and National Insurance from employees’ wages before paying them. This ensures taxes are paid regularly throughout the year, rather than in a lump sum at year-end. Your employer uses your tax code to determine how much to deduct each pay period.

A tax code is issued by HMRC to your employer and tells them how much tax-free income you are entitled to in a tax year. The most common code for 2026/27 is 1257L, which means you get the full £12,570 Personal Allowance. Codes can change if you have multiple jobs, benefits, or under/overpaid tax in previous years.

Adjusted Net Income is your total taxable income minus certain tax reliefs, such as pension contributions (grossed up), Gift Aid donations, and trade union subscriptions. It is used to determine eligibility for the Personal Allowance taper, High Income Child Benefit Charge, and other means-tested benefits.

Gross pay is your total earnings before any deductions (tax, NI, pension, etc.) are taken off. Net pay is your take-home pay after all deductions have been made from your gross salary.

The "60% tax trap" is a widely misunderstood feature of the UK tax system that catches higher earners off guard. It occurs because of the interaction between the Higher Rate of Income Tax (40%) and the tapering of the Personal Allowance. Once your Adjusted Net Income exceeds £100,000, HMRC reduces your £12,570 Personal Allowance by £1 for every £2 of income above that threshold. This means that for every additional £2 you earn, you lose £1 of tax-free allowance — effectively creating an extra 20% tax on that portion. Combined with the standard 40% Higher Rate, your effective marginal tax rate in the £100,000 to £125,140 band is approximately 60%. For example, if you earn £110,000, you have lost £5,000 of Personal Allowance (£10,000 ÷ 2). This means an additional £5,000 of your income is taxed at 40%, costing you £2,000 on top of the £4,000 in regular Higher Rate tax on the extra £10,000. Your total additional tax is £6,000 on £10,000 — an effective 60% rate. The most effective strategy to mitigate this trap is to make pension contributions via salary sacrifice that bring your Adjusted Net Income back below £100,000. This restores your full Personal Allowance and saves you tax at the effective 60% rate, making pension contributions in this income range extraordinarily tax-efficient. Our calculator models this automatically when you adjust your pension contribution percentage.

In the UK, most workplace pensions (Auto-Enrolment) don't calculate contributions on your entire salary. Instead, they use a specific "band" of earnings. For the 2026/27 tax year, this band is typically between £6,240 and £50,270. If your employer uses this method, the first £6,240 of your salary is "ignored" for pension purposes, and any earnings above £50,270 are also excluded from the calculation. • How does the £6,240 threshold affect my pension? Because the first £6,240 is excluded, your actual pension contribution (e.g., 5%) will be slightly lower than if it were calculated on your total gross pay. The Pro: You have slightly more "take-home pay" in your bank account each month. The Con: Your total pension pot grows a bit slower because less money is being invested. • Does this apply to both my contribution and my employer's? Yes. In a standard Auto-Enrolment scheme, both your 5% contribution and your employer’s 3% contribution are calculated on the same "Qualifying Earnings" band.

Salary sacrifice is an arrangement where you give up part of your salary in exchange for a non-cash benefit, such as pension contributions. This reduces your gross pay before tax and NI are calculated, saving you both Income Tax and National Insurance. It is usually the most tax-efficient way to contribute to a pension.

This is one of the most common questions from UK employees, and the answer depends on your income level: Salary Sacrifice: Your employment contract is amended so your gross salary is reduced by the amount of your pension contribution before any deductions are calculated. Both Income Tax and National Insurance are computed on the lower figure. For example, on a £40,000 salary with a 5% (£2,000) salary sacrifice pension contribution, tax and NI are calculated on £38,000. Relief at Source: Your pension contribution is taken from your net pay (after tax and NI). The pension provider then claims back basic rate tax (20%) from HMRC and adds it to your pension pot. You still pay NI on the full £40,000. Higher and additional rate taxpayers must claim the extra 20% or 25% relief via self-assessment. Which saves more money? • For basic rate taxpayers (up to £50,270): The tax relief is identical — both methods give you 20% relief on pension contributions. However, salary sacrifice also saves you 8% in employee NI and saves your employer 15% in employer NI. Many employers pass some or all of their NI saving back to the employee via a higher pension contribution. Salary sacrifice is therefore almost always better. • For higher rate taxpayers (£50,271–£125,140): Salary sacrifice automatically gives you the full 40% tax relief and 2% NI saving without needing to file a self-assessment return. With relief at source, you only get 20% automatically and must actively claim the remaining 20%. • For those in the 60% trap (£100,000–£125,140): Salary sacrifice is dramatically more beneficial. Each £1 contributed restores 50p of Personal Allowance, meaning the effective tax relief can reach 60%+ when you factor in NI savings. Our calculator defaults to salary sacrifice. Switch to "Relief at Source" to see the difference for your specific salary.

National Insurance (NI) is a UK tax on earnings that funds state benefits, including the State Pension, Maternity Allowance, and certain unemployment benefits. Employees, employers, and the self-employed all pay NI on earnings above certain thresholds.

Class 2 National Insurance is a flat weekly payment (£3.45/week in 2026/27) if your profit is over £6,725. It counts towards your State Pension. For a full year, this is £179.40. If your profit is below the threshold, you may not need to pay, but voluntary payments can help protect your pension.

Class 4 National Insurance is 9% on profits between £12,570 and £50,270, plus 2% on profits above £50,270. No Class 4 NI is due if your profit is below £12,570. This is paid via your Self Assessment tax return.

Student Loan Repayment Plans (1, 2, 4, 5, and Postgraduate) determine how much you repay based on your income and when/where you studied. Each plan has different thresholds, interest rates, and write-off rules. Our calculator lets you select your plan to see the impact on your take-home pay.

Student loan repayments in the UK are collected through payroll via HMRC, similar to Income Tax and National Insurance. The repayment rate is 9% of income above the relevant threshold for all undergraduate plans. The key differences for the 2026/27 tax year are: • Plan 1 (pre-2012 English/Welsh loans, or Northern Irish loans): Repayment threshold of £26,065 per year. You repay 9% of everything you earn above this amount. Outstanding balances are written off when you turn 65 or 25 years after the April following graduation (whichever comes first). • Plan 2 (post-2012 English/Welsh loans): Repayment threshold of £27,295 per year at 9%. These loans accrue interest at RPI plus up to 3% depending on income. The balance is written off 30 years after the April following graduation. • Plan 4 (Scottish student loans): Repayment threshold of £32,745 per year at 9%. Scottish borrowers benefit from the highest threshold, meaning they keep more of their income before repayments begin. Write-off occurs 30 years after graduation. • Plan 5 (post-2023 English/Welsh loans): Repayment threshold of £25,000 per year at 9%. Introduced for students starting courses from September 2023, this plan has a longer write-off period of 40 years and a lower interest rate (RPI only, with no additional margin). • Postgraduate Loan: A separate 6% repayment rate on income above £21,000. This runs concurrently with any undergraduate plan, meaning someone with both a Plan 2 and a Postgraduate Loan could be repaying 15% of their income above the respective thresholds. Our calculator allows you to select your specific plan and see the exact impact on your monthly take-home pay.

Self Assessment is the system used by HMRC for individuals to report income and pay tax that isn’t collected through PAYE, such as self-employment or rental income. You must file a tax return each year if you are self-employed, have significant untaxed income, or are subject to the HICBC.

Start with your total business income, subtract allowable expenses and pension contributions to get your profit. You then deduct Income Tax and National Insurance (Class 2 and Class 4) to find your estimated take-home pay. Our Self-Employed Take-Home Calculator does all this for you instantly for the 2026/27 tax year.

You can deduct allowable business expenses such as office costs, travel, equipment, and pension contributions. Only your profit after these deductions is taxed. Keeping detailed records helps you claim everything you’re entitled to and reduce your tax bill.

The HICBC is a tax charge that reduces or removes Child Benefit for families where the highest earner has an Adjusted Net Income above £60,000. The charge is 1% of Child Benefit for every £200 of income above £60,000, and the benefit is fully removed at £80,000 or more.

Marriage Allowance allows a lower-earning spouse or civil partner to transfer up to £1,260 of their unused Personal Allowance to their partner, reducing their tax bill by up to £252 per year. You can apply online via HMRC if you meet the eligibility criteria.

The Marriage Allowance (formally known as the Transferable Tax Allowance) allows a spouse or civil partner who earns below the Personal Allowance (£12,570) to transfer up to £1,260 of their unused allowance to their partner. The receiving partner must be a basic rate taxpayer — meaning their taxable income must not exceed £50,270 in England, Wales, or Northern Ireland (or £43,662 for Scottish taxpayers at the Intermediate Rate boundary). The tax saving for the recipient is worth up to £252 per year (£1,260 × 20%). This is applied as a reduction in the recipient's tax bill, not as an increase to their Personal Allowance. Key conditions for eligibility: • You must be married or in a civil partnership (cohabiting couples do not qualify). • The lower-earning partner must have income below £12,570 (they cannot use the allowance if they earn above this amount, even by £1). • The higher-earning partner must not be a Higher Rate or Additional Rate taxpayer. • Scottish taxpayers paying the Starter, Basic, or Intermediate rates do qualify — but those on the Higher Rate (42%) or above do not. You can apply online via HMRC's website and backdate a claim for up to four previous tax years. For couples where one partner does not work or has very low earnings (e.g., a stay-at-home parent), this is a simple, often-overlooked saving. Note: Our calculator does not currently apply the Marriage Allowance automatically, but you can manually override your Personal Allowance by entering tax code 1382L (which reflects the increased allowance of £13,830 for the receiving partner).

The High Income Child Benefit Charge (HICBC) is a tax charge that claws back Child Benefit from families where the highest-earning parent or partner has an Adjusted Net Income above £60,000 per year (increased from £50,000 in April 2024). How the charge works in 2026/27: • If your income is between £60,000 and £80,000, you repay 1% of your Child Benefit entitlement for every £200 of income above £60,000. • If your income exceeds £80,000, you repay the full amount of Child Benefit — effectively wiping out the benefit entirely through tax. Child Benefit rates for 2026/27 are £26.05 per week for the eldest or only child and £17.25 per week for each additional child. For a family with two children, the annual benefit is approximately £2,253.60. Example: If you earn £70,000 and have two children, you are £10,000 above the threshold. At 1% per £200, the charge is 50% of your Child Benefit — approximately £1,127 clawed back through self-assessment. Important considerations: • The charge applies to the higher earner in a household, not per couple. If both partners earn £59,000, no charge applies despite combined income of £118,000. • You must register for self-assessment to pay the charge once your income exceeds £60,000, even if you have no other reason to file a return. • A common tax planning strategy is to increase pension contributions (via salary sacrifice) to bring your Adjusted Net Income below £60,000, preserving the full Child Benefit while also benefiting from pension tax relief. Our calculator automatically computes the HICBC when you enter the number of children under "Dependent Children."

This is a practical illustration of the 60% tax trap described above. When your salary crosses £100,000, three deductions begin compounding: 1. Income Tax at 40% on the additional income above your current rate. 2. Loss of Personal Allowance: £1 lost for every £2 earned above £100,000, meaning £2,500 of previously tax-free income is now taxed at 40% — an extra £1,000 in tax. 3. National Insurance at 2% (since you are above the Upper Earnings Limit of £50,270). On the £6,000 gross increase from £99,000 to £105,000: • The first £1,000 (from £99,000 to £100,000) is taxed at the standard Higher Rate of 40% + 2% NI = 42%. Take-home: £580. • The next £5,000 (from £100,000 to £105,000) is taxed at the effective 60% rate (40% Higher Rate + 20% from PA taper) plus 2% NI = 62%. Take-home: £1,900. Total estimated take-home increase: approximately £2,480 on a £6,000 gross raise — an effective tax rate of 58.7%. Many employees in this bracket find that increasing their pension contributions is a far more efficient use of the additional income, as every £1 contributed to a pension in this band effectively costs them only 38p in lost net pay. Use our calculator's "Raise Comparison" feature to model this exact scenario with your personal circumstances.