Glossary of UK Tax & Payroll Terms

Total taxable income minus pension contributions (gross amount for relief at source, or the salary reduction for salary sacrifice) and Gift Aid donations (grossed up by 25%). HMRC uses this figure — not your gross salary — for the Personal Allowance taper above £100,000, calculating the High Income Child Benefit Charge, and determining Marriage Allowance eligibility. For example, someone earning £105,000 who contributes £6,000 via salary sacrifice has an Adjusted Net Income of £99,000, keeping their full Personal Allowance and saving over £3,000 in tax.

A portion of income that is tax-free or taxed at a reduced rate. The most common is the Personal Allowance (£12,570 for 2026/27, reducing to zero at £125,140). Other allowances include the Marriage Allowance (£1,260 transfer between spouses), the Dividend Allowance (£500 tax-free), and the Personal Savings Allowance (£1,000 for Basic Rate, £500 for Higher Rate taxpayers). Allowances effectively reduce your taxable income before tax bands are applied.

A legal requirement introduced in 2012 for employers to automatically enrol eligible employees (aged 22 to State Pension age, earning over £10,000/year) into a workplace pension. The minimum total contribution is 8% of qualifying earnings (£6,240–£50,270): 5% from the employee and 3% from the employer. You can opt out, but this means losing your employer's contribution — which is essentially free money. On a £30,000 salary, auto-enrolment adds roughly £712 per year from your employer alone.

A non-cash benefit from your employer — such as a company car, private medical insurance, gym membership, or interest-free loans above £10,000 — that HMRC treats as taxable income. The cash equivalent value is added to your income via your tax code (look for a K code or reduced personal allowance). For example, a company car with a list price of £35,000 and a BIK rate of 25% adds £8,750 to your taxable income, costing a Higher Rate taxpayer £3,500/year in extra tax.

A one-off or periodic payment in addition to your regular salary, taxed at your marginal rate in the month received. Because PAYE operates cumulatively, a large bonus can push you temporarily into a higher tax band. A £5,000 bonus for a Basic Rate taxpayer loses roughly £1,400 to tax and NI (28%), while the same bonus for a Higher Rate taxpayer loses roughly £2,100 (42%). Salary sacrifice your bonus into your pension before it's paid to avoid the higher marginal rate entirely.

A government payment of £26.05/week for the eldest child and £17.25/week for each additional child (2026/27 rates). Available to anyone responsible for a child under 16 (or under 20 in approved education). Subject to the High Income Child Benefit Charge if the higher earner in the household exceeds £60,000 — but you should still claim it to protect your National Insurance record, even if you opt out of payments.

NI paid on employed earnings. Employees pay 8% on income between £12,570 and £50,270 (Primary Threshold to Upper Earnings Limit) and 2% above. Employers pay a separate 15% on earnings above £5,000 (the Secondary Threshold). Class 1 contributions build your entitlement to the State Pension, Jobseeker's Allowance, and other contributory benefits. On a £40,000 salary, you pay approximately £2,194 and your employer pays £5,250.

A flat-rate NI contribution for the self-employed. Since 2024/25, it's treated as paid automatically if your profits exceed £6,845 (the Small Profits Threshold) — you no longer pay it directly. It still counts towards building your State Pension qualifying years. If profits are below £6,845 but above £6,725, you can pay voluntarily (roughly £3.45/week) to protect your pension record — one of the cheapest ways to secure a qualifying year.

NI charged on self-employed profits: 6% on the portion between £12,570 and £50,270, plus 2% on anything above. Paid via Self Assessment, not through PAYE. On £60,000 profit, Class 4 NI totals approximately £2,264. Unlike Class 1 employee NI, there's no employer counterpart — the self-employed bear the full burden but at a lower combined rate than employed workers.

Children under 16, or under 20 in approved full-time education or training, who qualify you for Child Benefit. The number of dependent children determines the total Child Benefit received and the corresponding HICBC liability if income exceeds £60,000. Two children in 2026/27 generate approximately £2,075/year in Child Benefit.

A record of money taken out of or put into a limited company by its director, separate from salary or dividends. If you borrow more than £10,000 from your company, you may face a Benefit in Kind tax charge, and the company may need to pay a 33.75% Section 455 tax charge on the outstanding amount if not repaid within nine months of the company's year-end.

A payment to shareholders from company profit after Corporation Tax. Dividends are taxed at lower rates than salary — 8.75% (Basic), 33.75% (Higher), 39.35% (Additional) — and don't attract National Insurance. There's a £500 tax-free Dividend Allowance for 2026/27. This is why many company directors pay themselves a small salary (up to the NI threshold) and take the rest as dividends, minimising their combined tax and NI bill.

A temporary code (typically 1257L M1 or 1257L W1) applied when HMRC doesn't have your full tax details — usually when starting a new job without a P45 or when first registered with PAYE. It calculates tax non-cumulatively (each period in isolation), which often leads to overpayment because your tax-free allowance isn't spread across the full year. If you've been emergency-taxed, contact HMRC or your employer's payroll department to get your correct code applied — overpaid tax is automatically refunded through your next payslips.

NI deducted from your salary: 8% on earnings between £12,570 and £50,270, then 2% on everything above. Zero if over State Pension age. These contributions build your entitlement to the State Pension and certain benefits. Unlike Income Tax, NI doesn't have a Personal Allowance taper — it's a flat percentage within each band, making it more predictable but not progressive in the same way as Income Tax.

NI your employer pays on top of your salary: 15% on earnings above £5,000 (the Secondary Threshold). This doesn't come from your pay, but it's a real cost that affects salary negotiations and hiring decisions. On a £50,000 salary, employer NI is £6,750, making the total employer cost £56,750. Small employers may qualify for the Employment Allowance, reducing their NI bill by up to £10,500.

Total income before any deductions, including salary, bonuses, commission, overtime, and taxable benefits in kind. This is the starting figure for all tax calculations. Your gross income determines which tax bands apply and whether special rules like the Personal Allowance taper or HICBC are triggered. It's not the same as Adjusted Net Income, which deducts pension contributions and Gift Aid.

Gross = your total earnings before deductions. Net = take-home pay after all deductions (Income Tax, NI, pension, student loan). The gap between the two grows as you earn more due to progressive taxation. At £30,000 gross, net pay is roughly £24,500 (18% deduction). At £60,000 gross, net is roughly £44,000 (27% deduction). At £100,000, the gap can exceed 35% once the Personal Allowance taper kicks in. Always compare salaries on a net basis when evaluating job offers.

A tax charge that claws back Child Benefit when the higher earner in a household exceeds £60,000. You repay 1% of the full benefit for every £200 of income above £60,000, reaching full clawback at £80,000. It's assessed per individual, not per household — meaning a couple each earning £59,000 (£118,000 combined) pay nothing, while a single parent on £70,000 loses 50%. Salary sacrifice pension contributions are the most effective way to reduce your income below the £60,000 trigger.

His Majesty’s Revenue and Customs — the UK government department responsible for collecting taxes (Income Tax, NI, VAT, Corporation Tax), administering tax codes, processing Self Assessment returns, paying out tax credits, and enforcing compliance. They issue your tax code, process your P45/P60, and handle refund claims. Contact them on 0300 200 3300 or via your Personal Tax Account at gov.uk.

Legislation (named after Inland Revenue press release 35) that determines whether a contractor is genuinely self-employed or a 'disguised employee' for tax purposes. If you're inside IR35, your client (or an umbrella company) must deduct Income Tax and NI as if you were an employee. Since April 2021, the end client (not the contractor) decides IR35 status for medium and large businesses. Being caught inside IR35 without planning typically costs 20-25% more in tax and NI than genuine self-employment.

Lets a non-taxpaying spouse (or one earning under £12,570) transfer £1,260 of their Personal Allowance to a Basic Rate taxpayer partner, saving up to £252/year. Can be backdated four full tax years, giving a potential lump sum of up to £1,258. The receiving partner must be a Basic Rate taxpayer — Higher Rate and Additional Rate taxpayers are ineligible. Apply at gov.uk/marriage-allowance. This is separate from the Married Couple's Allowance (which only applies if one partner was born before 6 April 1935).

A UK tax on earnings that funds the State Pension, NHS, and contributory benefits. Employees pay Class 1 (8%/2%), self-employed pay Class 2 (automatic) and Class 4 (6%/2%). NI is separate from Income Tax and has different thresholds. You need 35 qualifying years of NI for the full new State Pension (currently £221.20/week). NI stops for employees when they reach State Pension age, but Income Tax continues — making retirement a significant effective pay rise for many workers.

Your take-home pay after all deductions: Income Tax, National Insurance, pension contributions, student loan repayments, and any other items like childcare vouchers or season ticket loans. This is the amount deposited into your bank account on payday. It's always less than your gross pay, and the percentage deducted depends on your salary level, pension contributions, and personal circumstances.

The legally mandated minimum hourly wage for workers aged 21 and over. For 2026/27, the NLW is £12.71/hour. At 37.5 hours per week, this equates to a gross annual salary of approximately £24,786 and a monthly take-home of roughly £1,718 after basic deductions. Employers who pay below the NLW face penalties of up to 200% of the underpayment.

The legal minimum hourly pay most UK workers are entitled to, varying by age bracket: Under 18 = £7.44, 18–20 = £10.69, 21+ = £12.71 (NLW rate). Apprentices in their first year earn at least £7.44/hour. Rates are reviewed annually by the Low Pay Commission and typically increase each April.

A form employers submit to HMRC listing all benefits in kind and expenses provided to employees — company cars, medical insurance, interest-free loans, etc. HMRC uses P11D information to adjust your tax code for the following year, so the tax on these benefits is collected through PAYE. You should receive a copy from your employer by 6 July each year. Check it carefully — incorrect P11D values lead to wrong tax codes.

A form your employer gives you when you leave a job. It shows your total pay and tax deducted in the current tax year (in Parts 1A, 2, and 3). Your new employer uses Parts 2 and 3 to set up PAYE with the correct tax code and cumulative figures. If you lose your P45 or start a job without one, your new employer will put you on an emergency tax code — which often leads to overpayment until HMRC issues the correct code.

An end-of-year summary from your employer showing your total pay and tax deducted for the tax year just ended (issued by 31 May). You need your P60 for Self Assessment tax returns, tax rebate claims, mortgage applications, and student loan queries. Keep it safe — your employer doesn't have to provide duplicates, and HMRC may take weeks to send replacement information.

The system where employers deduct Income Tax and NI from your wages before payment. PAYE operates cumulatively across the tax year — HMRC tracks your year-to-date earnings and adjusts each payment so your annual tax bill is spread evenly. If you receive a bonus in one month, the system temporarily increases your deduction but adjusts in later months. This is why your take-home can fluctuate even on the same salary: PAYE is constantly 'catching up' to ensure you pay the right total by 5 April.

A unique code (e.g. 123/AB45678) identifying your employer's PAYE scheme with HMRC. It consists of a three-digit tax office number and a reference. You'll find it on your payslip, P45, and P60. If you need to contact HMRC about your tax, having your employer's PAYE reference speeds up the process considerably.

A document issued each pay period showing your gross pay, all deductions (Income Tax, NI, pension, student loan), and your net pay. UK employers are legally required to provide payslips before or on payday. Key lines to check: your tax code (top section), gross pay year-to-date, and tax paid year-to-date. Discrepancies between these figures and your P60 should be raised immediately with payroll.

Money paid into a pension by you or your employer. Two main methods: salary sacrifice (reduces your gross pay before tax and NI, saving both) and relief at source (taken from net pay, with 20% tax relief added automatically by your provider — Higher/Additional Rate taxpayers claim the rest via Self Assessment). On a £45,000 salary with 5% contribution: salary sacrifice costs you £1,471 in reduced take-home but adds £2,250 to your pension. Relief at source costs £1,632 in reduced take-home for the same £2,250 pension contribution. The £161 difference is the NI saving.

The amount you can earn tax-free each year: £12,570 for 2026/27. This has been frozen since 2021/22 and is expected to remain frozen until at least 2028/29. Crucially, it tapers by £1 for every £2 of income above £100,000, reaching zero at £125,140. This taper creates the infamous '60% tax trap' where your effective marginal rate is 62%. Pension contributions via salary sacrifice are the most effective way to restore your full allowance if you earn in this range.

The £6,240–£50,270 band used to calculate Auto-Enrolment pension contributions. Contributions are based only on earnings within this band — the first £6,240 is excluded. On a £30,000 salary with 5% employee contribution on qualifying earnings, you'd contribute £1,188/year (5% of £23,760), not £1,500 (5% of £30,000). Some employers use 'total earnings' instead, which results in higher contributions. Check your pension scheme documentation to understand which method your employer uses.

A contractual agreement to reduce your gross salary in exchange for a non-cash benefit — most commonly pension contributions, but also Cycle to Work, electric vehicle leases, or childcare vouchers. The key advantage is that both Income Tax and National Insurance are saved on the sacrificed amount, making it more efficient than standard deductions. On a £50,000 salary with a £5,000 salary sacrifice into pension, you save approximately £2,000 in combined tax and NI compared to receiving the £5,000 as pay and contributing via relief at source. The downside: reduced contractual salary can affect mortgage assessments and statutory payments.

HMRC's system for reporting and paying tax on income not collected through PAYE — including self-employment profits, rental income, HICBC, capital gains, and investment income. The filing deadline is 31 January after the tax year ends (e.g. 31 January 2028 for 2026/27). Late filing incurs an automatic £100 penalty. If your tax bill exceeds £1,000, you'll need to make payments on account (two advance payments of 50% each in January and July). Register via gov.uk if this is your first return.

31 January following the end of the tax year for online Self Assessment returns (e.g. 31 January 2028 for 2026/27). Paper returns have an earlier deadline of 31 October. Late filing triggers a £100 penalty immediately, rising to £10/day after three months, then larger fixed penalties at 6 and 12 months. If you owe tax, interest is also charged from the due date. Setting a calendar reminder for early January is the simplest way to avoid the last-minute rush that crashes the HMRC website every year.

The government organisation that administers student loans and grants in the UK. They set your repayment plan, notify HMRC of your obligation, and manage the balance. Once you've repaid in full, SLC notifies HMRC to stop deductions — but this can take up to six weeks, during which you may be over-deducted. If you're close to full repayment, consider switching to direct debit payments to SLC to avoid overpaying through PAYE.

Rules governing how much you repay based on income and plan type. Plan 1 (pre-2012 England/Wales, all NI): 9% above £26,900, written off at 65. Plan 2 (2012-2023 England/Wales): 9% above £29,385, written off after 30 years. Plan 4 (Scotland): 9% above £33,795, written off after 30 years. Plan 5 (post-2023 England): 9% above £25,000, written off after 40 years. Postgraduate: 6% above £21,000. If you have both undergraduate and postgraduate loans, both are deducted simultaneously.

The net amount deposited into your bank account after all mandatory and voluntary deductions. It represents what you actually have to spend. At UK median salary (approximately £35,000), take-home pay is roughly £27,400/year or £2,283/month — meaning you keep about 78% of your gross. The percentage you keep decreases as salary increases due to progressive taxation: at £50,000, you keep roughly 74%; at £100,000, roughly 67%.

An income range taxed at a specific rate. England, Wales, and Northern Ireland have three bands: Basic Rate (20% on £12,571–£50,270), Higher Rate (40% on £50,271–£125,140), and Additional Rate (45% above £125,140). Scotland has six bands: Starter (19%), Basic (20%), Intermediate (21%), Higher (42%), Advanced (45%), and Top (48%), each with different thresholds. Only income within each band is taxed at that rate — crossing into the Higher Rate band doesn't mean all your income is taxed at 40%.

A code issued by HMRC that tells your employer how much tax-free income you receive and how to calculate your PAYE deductions. The standard 2026/27 code is 1257L (£12,570 allowance, standard situation). Common variants: S1257L (Scottish taxpayer), C1257L (Welsh taxpayer), BR (all income taxed at Basic Rate — common for second jobs), K codes (negative allowance — you owe more tax, often due to benefits in kind), and M1/W1 suffixes (emergency, non-cumulative basis). Errors in your tax code are the most common cause of over- or under-paying tax — always check your code matches your latest HMRC notice.

A government incentive that reduces the amount of tax you owe, most commonly available on pension contributions, charitable donations (Gift Aid), certain work expenses, and professional body subscriptions. Pension tax relief is the most valuable: a £1,000 pension contribution costs a Basic Rate taxpayer only £800 (20% relief), a Higher Rate taxpayer £600 (40% relief), and an Additional Rate taxpayer £550 (45% relief). Relief at source provides automatic 20% relief; higher amounts must be claimed via Self Assessment or by contacting HMRC.

A form submitted to HMRC via Self Assessment to report all taxable income, capital gains, pension contributions, Gift Aid donations, and claim any reliefs. Required for self-employed workers, landlords, those earning over £150,000, and anyone with complex tax affairs. You can file online via your HMRC Personal Tax Account or use commercial software. Filing early (from 6 April) gives you more time to pay and helps you plan — the tax isn't due until 31 January regardless of when you file.

The UK tax year runs from 6 April to 5 April. All rates, thresholds, and allowances are set per tax year. For example, the 2026/27 tax year started on 6 April 2026 and ends on 5 April 2027. Tax codes, pension allowances, and student loan thresholds all reset at the start of each tax year. The unusual start date is a historical quirk dating back to 1752 when Britain adopted the Gregorian calendar.

5 April — the last day of the UK tax year. Key planning actions before this date include: using your ISA allowance (£20,000), making pension contributions to utilise your Annual Allowance, claiming Marriage Allowance, and checking your tax code for the upcoming year. Self Assessment payments on account for the current year are due the following 31 January.

Any income you can earn before paying tax. Includes the Personal Allowance (£12,570), Savings Allowance (£1,000 for Basic Rate, £500 for Higher Rate, £0 for Additional Rate), Dividend Allowance (£500), Trading Allowance (£1,000), and Capital Gains Annual Exempt Amount (£3,000). Each operates independently — you can benefit from several simultaneously.

The portion of your total income subject to Income Tax after allowances and reliefs are applied. If you earn £45,000 gross with a Personal Allowance of £12,570, your taxable income is £32,430. If you also contribute £3,000 via salary sacrifice pension, your taxable income drops to £29,430 (since the £3,000 is deducted from gross before tax). Understanding your taxable income is essential for determining which tax band you're in and whether special rules (like the Personal Allowance taper) apply.

An income level where a tax rate, benefit, or contribution starts or changes. Key 2026/27 thresholds: Personal Allowance = £12,570, Higher Rate = £50,270, Additional Rate = £125,140, NI Primary Threshold = £12,570, Employer NI Secondary Threshold = £5,000, HICBC trigger = £60,000, Personal Allowance taper = £100,000. Thresholds have been frozen since 2021, meaning inflation-linked pay rises push more workers into higher tax brackets each year (fiscal drag).