How UK Income Tax Works
Almost everyone in the United Kingdom pays Income Tax, but very few people are ever taught how it works. Tax is taken from your wages before you see them, or you are asked to work it out yourself at the end of the year — and in both cases the system can feel like a black box. This guide opens the box. It explains who collects the tax, what the tax year is, the two main ways tax is collected, and what counts as taxable income. It gives no personal tax advice; it explains the system so that the rest of this site makes sense.
UK income tax in one paragraph
Income Tax is collected by HMRC, HM Revenue and Customs. The tax year runs from 6 April to the following 5 April. In 2026/27 the first £12,570 of your income is tax-free — the Personal Allowance. Above that, tax is charged in bands: 20% on income up to £50,270, 40% up to £125,140, and 45% above that. Most employees pay through PAYE, where the employer deducts the tax before paying the wages; everyone else with untaxed income usually pays through Self Assessment.
Who collects the tax
Income Tax is collected by HM Revenue and Customs — HMRC. It is the same organisation that collects National Insurance, Capital Gains Tax, and most other UK taxes, and it runs the online services where you check your tax, change your details, and file a return. When this site says "check on GOV.UK", it means the official government website, where HMRC publishes its guidance.
The money goes to the UK government and pays for public services — the NHS, schools, roads, benefits, and everything else the state funds. Income Tax is the government’s largest single source of revenue. That is why the rates and thresholds matter so much, and why they are announced in the Budget each year.
The tax year: 6 April to 5 April
The UK tax year does not follow the calendar year. It runs from 6 April to the following 5 April. The 2026/27 tax year runs from 6 April 2026 to 5 April 2027. All of the figures on this site are for 2026/27 unless a guide says otherwise.
The odd dates go back centuries, to the old calendar and the days when the year began on Lady Day, 25 March. The practical point is simpler: your tax is worked out year by year, and the year always ends on 5 April. Payslips, P60s, and tax returns all use this year, so when HMRC asks about "this tax year", it means the year ending on the next 5 April.
The two ways tax is collected
Most people never file a tax return, because their tax is collected through PAYE — Pay As You Earn. If you are an employee, your employer works out the tax on each payday using your tax code, deducts it from your wages along with National Insurance, and sends it to HMRC. You see the result on your payslip. PAYE is also used for most pensions.
The other route is Self Assessment. If you are self-employed, a landlord, a company director, or you have untaxed income such as rent or large amounts of savings interest, you usually have to file a tax return each year and pay the tax yourself. The Self Assessment guide on this site explains who has to file, and the deadlines. Some people use both: PAYE for their job, and Self Assessment for a side income.
What counts as taxable income
Income Tax is charged on most kinds of income: wages and salaries, profits from self-employment, pension income, rental income, and most savings interest and dividends above their allowances. Not everything counts — some benefits are not taxable, and some income, such as the first £1,000 of trading or property income, is covered by small allowances.
The important idea is that your tax is worked out on your total income, not on each source separately. Your Personal Allowance of £12,570 applies once, across all your income, and the tax bands apply to the total. That is why having two jobs, or a job plus a pension, can change how much tax you pay — and why the tax code guide on this site matters.
How the bands work
Tax is charged in slices, not on your whole income at one rate. The first slice — up to £12,570 in 2026/27 — is tax-free. The next slice, up to £50,270, is taxed at 20%. The slice from £50,271 to £125,140 is taxed at 40%, and anything above £125,140 is taxed at 45%. So if you earn £60,000, you do not pay 40% on all of it — you pay 0% on the first £12,570, 20% on the next slice, and 40% only on the part above £50,270.
There are two wrinkles to know about. First, Scotland sets its own income tax bands, with six bands and rates from 19% to 48% in 2026/27 — the bands in this guide are for England, Wales, and Northern Ireland. Second, if your income is over £100,000, your Personal Allowance starts to shrink — £1 lost for every £2 over £100,000 — and it is gone entirely at £125,140. The rates and allowances guide explains both in detail.
Sources: GOV.UK, Income Tax rates and Personal Allowances; GOV.UK, Pay As You Earn (PAYE); HMRC.