UK income tax is worked out in slices. Subtract your £12,570 personal allowance from your salary to get taxable income, then tax each slice at its band rate: 20% on the first £37,700, 40% on the next slice up to £125,140, and 45% above. You never pay the higher rate on your whole salary — only on the part that falls in that band.
People often assume that crossing into the 40% band means 40% of their whole salary disappears. It doesn’t. UK income tax is a slice system: each portion of your income is taxed at its own rate, and only the slice that falls in a higher band is taxed at the higher rate. Here is the actual method.
Step 1 — take off your personal allowance
Start with your gross salary and subtract your £12,570personal allowance (the standard figure for 2025/26). What’s left is your taxable income — the only part the bands touch. If you earn under £12,570, there is no income tax to pay at all.
Step 2 — tax each slice at its band rate
Working upward from the bottom of your taxable income:
- The first £37,700 of taxable income is taxed at 20%.
- The next slice, up to £125,140 of taxable income, is taxed at 40%.
- Anything above that is taxed at 45%.
Add the slices together and that is your income tax for the year. National Insurance is a separate calculation on top (covered below).
A full worked example: £90,000
Allowance: £90,000 − £12,570 allowance = £77,430 taxable income.
Basic rate: the first £37,700 at 20% = £7,540.00.
Higher rate: the remaining £39,730 at 40% = £15,892.00.
Total income tax: £23,432.00— which our engine confirms to the penny. That’s an effective tax rate of 26.0%, far below the 40% headline, because most of the salary is taxed at 20% or not at all.
Where pension contributions change the sum
A workplace pension contribution comes off before the bands are applied (in a net-pay or salary-sacrifice scheme), so it reduces your taxable income pound for pound. Put £5,000 into a pension and the top £5,000of your income — which might have been taxed at 40% — isn’t taxed at all. That’s why pension contributions are worth most to higher-rate taxpayers. Our salary sacrifice guide explains the mechanics.
Then National Insurance, separately
Income tax isn’t the whole deduction. On top comes National Insurance — 8% on earnings between £12,570 and £50,270, then 2% above. It uses its own thresholds and, unlike income tax, isn’t reduced by a net-pay pension. Add the two together and you have your total deductions — which is exactly what our calculator shows.
Let the calculator do the sum
Enter your salary and see the full band-by-band breakdown instantly, with National Insurance, pension and student loan handled too.
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