A complete guide to UK take-home pay: understanding the £12,570 Personal Allowance, the 60% marginal tax trap between £100k and £125k, Scottish devolved tax bands, and Class 1 NIC.
In the UK, employees are taxed through Pay As You Earn (PAYE). Most individuals receive a tax-free Personal Allowance of £12,570. Income above this is taxed at 20% (Basic Rate up to £50,270), 40% (Higher Rate up to £125,140), and 45% (Additional Rate above £125,140). Between £100,000 and £125,140, the personal allowance is reduced by £1 for every £2 of income, creating an effective 60% marginal income tax rate. In Scotland, a separate 6-band system applies (19% to 48%). Employees also pay Class 1 National Insurance at 8% on earnings between £12,570 and £50,270, and 2% on earnings above £50,270.
Pay As You Earn (PAYE) is the administrative system used by His Majesty's Revenue and Customs (HMRC) to collect Income Tax and National Insurance Contributions (NIC) directly from employment wages.
Your employer uses a Tax Code (the standard code is 1257L) provided by HMRC to calculate the statutory deductions due on every pay period (weekly, fortnightly, or monthly).
For England, Wales, and Northern Ireland, UK income tax is assessed across three progressive bands above the Personal Allowance:
| Band | Taxable Band Width | Tax Rate |
|---|---|---|
| Personal Allowance | £0 to £12,570 | 0% |
| Basic Rate | £12,571 to £50,270 | 20% |
| Higher Rate | £50,271 to £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Under the Scotland Act 2016, the Scottish Parliament holds devolved authority to set Scottish Income Tax (SRIT) rates on non-savings, non-dividend income. Anyone whose main residence is in Scotland has an S tax code (e.g. S1257L) and pays under Scotland's distinctive six-band schedule:
Note: Scottish residents earning over £28,850 pay more tax than their English counterparts.
Under Section 35 of the Income Tax Act 2007, an employee's Personal Allowance of £12,570 is reduced by £1 for every £2 of adjusted net income exceeding £100,000.
Because you are paying 40% income tax on earnings in this band AND losing £1 of tax-free allowance for every £2 earned (effectively subjecting that extra pound to another 20% tax), your effective marginal income tax rate is 60% (plus 2% National Insurance = 62% total marginal deduction).
Employees pay Class 1 National Insurance on their gross earnings:
Workplace pensions in the UK are structured primarily under:
Student loan deductions are calculated at 9% on gross earnings above statutory repayment thresholds:
For a standard employee in London earning £75,000 per year (Tax Code 1257L, 5% pension via salary sacrifice):
Common questions regarding UK PAYE tax schedules and payroll deductions.
The code 1257L signifies that you are entitled to the standard tax-free Personal Allowance of £12,570 for the tax year. The letter 'L' indicates that you are entitled to the basic personal allowance for a single person.
The UK personal tax year runs from April 6th of one year to April 5th of the following year. The 2026/27 tax year runs from 6 April 2026 to 5 April 2027.
Historically yes. However, HMRC has removed the automatic requirement to file Self Assessment solely for earning over £100k, provided all income is taxed under PAYE. However, if you earn over £150,000 or have untaxed income, you must still register and file.
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