Beginner's Guide to UK Tax for 2026/27

UK tax is easier to follow when you separate the different deductions. For an employee, the main ones are usually Income Tax and employee National Insurance. A pension contribution or Student Loan can also reduce the amount paid into your bank account.

This guide covers the tax year from 6 April 2026 to 5 April 2027. It explains standard employment income; it is not a calculation of your personal liability.

Quick Summary

• Income Tax and National Insurance use different bands and are calculated separately.
• PAYE is the system employers use to deduct tax from pay; your tax code tells payroll how to treat your allowance.
• Pension contributions do not all work the same way. Salary sacrifice, net pay and relief at source have different effects.
• Student Loan thresholds changed for 2026/27.
• Employees cannot claim homeworking tax relief for 2026/27, although qualifying employer reimbursements can still be tax-free.
• Having PAYE income does not by itself decide whether you need Self Assessment; use HMRC's checker for your circumstances.

Income Tax for 2026/27

The standard Personal Allowance is £12,570. It reduces by £1 for every £2 of adjusted net income above £100,000 and is nil at £125,140.

For employment income in England, Wales and Northern Ireland, the main bands are:

These are marginal bands. Moving into a higher band does not make all your income taxable at the higher rate.

Scotland has separate Scottish Income Tax bands for earnings and pension income. Savings and dividend income use UK-wide rules.

Employee National Insurance for 2026/27

Most employees are in National Insurance category A. For 2026/27, the category A employee rates are:

Payroll normally calculates National Insurance for each pay period, using the published weekly or monthly thresholds. It is not simply an annual Income Tax calculation with a second percentage added.

National Insurance contributions and credits can help build entitlement to certain benefits, including the State Pension. Eligibility depends on your contribution record and the rules for the benefit.

How PAYE Works

PAYE stands for Pay As You Earn. In a typical payroll:

1. HMRC gives your employer a tax code.
2. Payroll applies that code and the PAYE rules to the pay period.
3. The employer deducts Income Tax, employee National Insurance and any other payroll deductions.
4. Your payslip records gross pay, deductions and net pay.
5. The employer reports payroll information and pays the relevant amounts to HMRC.

PAYE can still need correction when information changes, for example after a job change, a taxable benefit or an updated estimate of other income.

Tax Codes: What M and N Actually Mean

HMRC explains tax-code letters as follows:

• L usually means you are entitled to the standard Personal Allowance.
• M means you receive a transfer of 10% of your partner's Personal Allowance through Marriage Allowance.
• N means you transfer 10% of your Personal Allowance to your partner.
• BR usually taxes all income from that job or pension at the basic rate.
• 0T means no Personal Allowance is being used for that source.
• A K code is used when additions to taxable pay represented through the code are greater than the available allowances.
• C at the start identifies a Welsh taxpayer code.
• S at the start identifies a Scottish taxpayer code.

Do not assume that someone receiving Marriage Allowance has the code 1257M, or that someone transferring it has 1257N. The number reflects the allowance and adjustments HMRC has allocated to that employment or pension. Check the complete code on your payslip or in your Personal Tax Account.

Pension Contributions: Three Different Methods

The phrase "5% pension" is not enough to predict take-home pay. First check which method the scheme uses and what earnings the percentage applies to.

Salary sacrifice

Under a valid salary sacrifice arrangement, you agree to lower contractual cash pay and your employer makes a pension contribution. Under the 2026/27 rules, the sacrificed cash is normally outside employee Income Tax and National Insurance. Salary sacrifice can affect earnings-related or contribution-based benefits.

PayeTax's pension input currently models this salary-sacrifice treatment.

Net pay arrangement

With net pay, the employer deducts your contribution before calculating Income Tax. This normally gives tax relief at your marginal rate automatically. National Insurance is still assessed on gross earnings before the employee pension deduction.

Relief at source

With relief at source, your contribution is taken after Income Tax and National Insurance. The provider claims basic-rate relief and adds it to the pension. If you pay Income Tax above the basic rate, you may need to claim additional pension tax relief.

Auto-enrolment minimum contributions often apply to qualifying earnings rather than the whole salary. Check your scheme documents before comparing a payslip with any calculator.

Student Loan Repayments for 2026/27

The annual Student Loan and Postgraduate Loan thresholds from April 2026 are:

Payroll uses the threshold for the pay period and rounds each loan-type deduction down to the nearest whole pound. Payroll operates one undergraduate plan at a time, plus a Postgraduate Loan where applicable. If an employee cannot identify their plan, payroll uses Plan 5 until HMRC issues an SL1 notice; that default is available for Plan 1, 2 or 4 loans. If the employee has more than one undergraduate plan, payroll instead uses the plan with the lowest recovery threshold until the SL1 arrives.

If you are unsure which plan applies, use the official plan checker.

Employment Expenses: What Changed in 2026/27

Business mileage in your own vehicle

For 2026/27, the approved mileage amount for an employee's own car or van is 55p per business mile for the first 10,000 business miles and 25p after that. Commuting to a permanent workplace is not business mileage.

If your employer pays less than the approved amount, you may be able to claim Mileage Allowance Relief on the shortfall. The relief is on the shortfall at your tax rate; it is not a repayment of the whole mileage amount.

Working from home

From 6 April 2026, employees cannot claim tax relief for working from home for the 2026/27 tax year. Eligible claims can still be made for the four previous tax years.

This does not prevent an employer from reimbursing qualifying additional household costs. Under the separate employer homeworking-expense rules, an employer can pay up to £6 a week, or £26 a month for monthly-paid employees, without supporting evidence when the conditions are met. Higher reimbursements need evidence of the additional costs.

Other job expenses

Tax relief may be available for some required professional subscriptions, uniforms, tools and business travel. Eligibility is specific. Start with HMRC's job-expenses checker rather than assuming every work-related purchase qualifies.

When PAYE Employees Need Self Assessment

PAYE employees do not automatically need a tax return, and a salary above a particular amount is not by itself a universal filing trigger.

HMRC says a return is required in some circumstances and may be needed for untaxed income, property income, savings or investments, foreign income, capital gains, partnership income and other cases. The rules depend on amounts, reliefs and whether HMRC can collect tax another way.

HMRC's Self Assessment checker currently covers 2025/26. For 2026/27, use HMRC's current who must send a tax return guidance until the checker advances. If HMRC sends you a notice requiring a return, you must respond even if you think no tax is due.

Savings Interest

Tax on savings depends on your other income. You may have unused Personal Allowance, the starting rate for savings, and a Personal Savings Allowance. The available amount is not the same for every taxpayer. HMRC's savings-interest guidance explains how the allowances interact.

How to Check a Take-Home Estimate

Step 1: Use the right tax year and pay period

Choose 2026/27 and the pay frequency shown on your payslip.

Step 2: Copy your complete tax code

Include any Welsh or Scottish prefix, Marriage Allowance suffix or emergency basis shown by payroll.

Step 3: Identify pension and Student Loan details

Confirm whether the pension is salary sacrifice, net pay or relief at source, and check your Student Loan plan through the official service.

Step 4: Compare like with like

Compare gross pay and each deduction separately. Benefits in kind, bonuses, arrears, payroll rounding and deductions outside the calculator can all create differences.

Official Sources

• Income Tax rates and Personal Allowances
• National Insurance rates and categories
• Student Loan repayment guidance for employers
• 2026/27 Student Loan deduction tables
• Workplace pension deduction methods
• Check if you need a Self Assessment return
• Tax relief for employee expenses
• Tax-free employer homeworking reimbursements

Tools & Calculators

• Estimate your take-home pay
• Explore all tax tools

Frequently Asked Questions

Do I need Self Assessment if all my income is taxed through PAYE?

Often not, but PAYE status alone does not settle the question. HMRC's checker currently covers 2025/26; for 2026/27, use its current filing guidance and follow any notice to file that HMRC sends you.

What does the Personal Allowance mean?

It is an amount of income that can be received before Income Tax is due. The standard 2026/27 allowance is £12,570, but it can be reduced by high adjusted net income or by items included in a tax code.

Does every pension contribution reduce National Insurance?

No. A valid salary sacrifice can reduce the cash earnings subject to National Insurance under 2026/27 rules. Net pay and relief-at-source employee contributions do not reduce National Insurance.

Can employees claim the homeworking flat rate in 2026/27?

No. Employee homeworking tax relief is unavailable from 6 April 2026. A qualifying employer reimbursement is a separate rule and can still be tax-free.