Personal Allowance
Personal Allowance is the amount of money you're allowed to earn each year without paying income tax on it. You can use this allowance against your salary, savings interest, dividends and other income.
For the 2026/27 tax year, the Personal Allowance is set at £12,570. If you earn less than this, you typically won't owe any income tax.
This allowance changes if you qualify for benefits like Marriage Allowance or Blind Person's Allowance, and reduces for high earners. If your income exceeds £100,000, for every £2 you earn above the threshold, £1 is subtracted from your allowance. At £125,140 you have no allowance left.
Tax Code
Your tax code tells your employer how much income tax to take from your salary. HMRC decides which code to use for you. The numerical part represents your Personal Allowance divided by 10 — e.g. 1257L is a £12,570 allowance.
An S prefix means Scottish rates; C means Welsh rates (currently the same as England).
| Code | Description |
|---|---|
| ****L | Standard tax-free Personal Allowance |
| ****M | Marriage Allowance: 10% transfer from partner |
| ****N | Marriage Allowance: 10% transfer to partner |
| ****T | Tax code includes calculations for Personal Allowance |
| K**** | Untaxed income exceeds allowance — treated as extra pay |
| 0T | Personal Allowance used up / new job without code |
| BR | All income taxed at basic rate |
| D0 | All income taxed at higher rate (Intermediate in Scotland) |
| D1 | All income taxed at additional rate (Higher in Scotland) |
| D2 | All income taxed at top rate |
| NT | No tax on this income |
If your code ends in W1/M1/X you're on an emergency code — omit that suffix when entering it.
Income Tax bands 2026/27
England, Wales & Northern Ireland (tax code 1257L)
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | over £125,140 | 45% |
Scotland (tax code S1257L)
Scottish residents' dividends, savings interest and Child Benefit are taxed at England rates.
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Starter rate | £12,571 – £16,537 | 19% |
| Basic rate | £16,538 – £29,526 | 20% |
| Intermediate rate | £29,527 – £43,662 | 21% |
| Higher rate | £43,663 – £75,000 | 42% |
| Advanced rate | £75,001 – £125,140 | 45% |
| Top rate | over £125,140 | 48% |
Savings interest
Savings interest is liable to income tax but not National Insurance. It uses your Personal Allowance after your salary. You may also qualify for:
- Starting Rate for Savings: up to £5,000 tax-free if your other income is below £17,570. Reduces £1-for-£1 above your Personal Allowance.
- Personal Savings Allowance: £1,000 (basic rate), £500 (higher rate), £0 (additional rate).
Student loan plans
| Plan | Threshold | Rate |
|---|---|---|
| Plan 1 | £26,900 | 9% |
| Plan 2 | £29,385 | 9% |
| Plan 4 | £33,795 | 9% |
| Plan 5 | £25,000 | 9% |
| Plan PG | £21,000 | 6% |
If you have multiple non-postgraduate plans, you repay 9% on the lowest threshold once. Postgraduate loans are always calculated separately at 6%.
Pension
How pension contributions are taxed depends on the arrangement:
- Auto-enrolment: Contribution % applies to earnings between £6,240 and £50,270. Reduces income tax but not NI.
- Employer scheme (net pay): Contribution % applies to gross salary. Reduces income tax but not NI.
- Salary sacrifice: You forgo salary in exchange for pension contributions. Reduces income tax, NI and student loan.
- Personal pension (relief at source): Paid from take-home. HMRC tops up 20%. Higher/additional rate payers claim the rest via self-assessment.
Bonus
A bonus is taxed like ordinary pay, but a large lump sum can push you into a higher tax band for that month, resulting in a big deduction. Over the year your effective rate normalises via PAYE recalculation.
Overtime
Overtime is treated exactly like ordinary pay — no special allowance, no different rate. Your total pay for the pay period determines the tax and NI due.
Salary sacrifice
You agree with your employer to reduce your salary in exchange for a non-cash benefit (usually pension, EV, or cycle-to-work). Since April 2017 most schemes save only National Insurance, not income tax — pension and low-emission cars remain the main exceptions where you save both.
Taxable benefits
Employer perks like a company car or private healthcare (benefits in kind) are taxed but exempt from NI. Cash allowances (e.g. car allowance) are treated as salary and attract both income tax and NI.
Child Benefit
- Eldest / only child: £26.05 / week
- Each additional child: £17.25 / week
If your adjusted net income exceeds £60,000, you may owe the High Income Child Benefit Charge — 1% of the benefit for every £200 over £60,000. At £80,000+ you effectively repay all of it.
Dividends
You get a dividend allowance of £500. Dividends above your allowance are taxed at:
| Band | Taxable income | Rate |
|---|---|---|
| Basic rate band | — | 10.75% |
| Higher rate band | — | 35.75% |
| Additional rate band | — | 39.35% |
Gift Aid
When you donate to a UK charity through Gift Aid, they claim an extra 25p per £1. Higher and additional rate taxpayers can claim back the difference between their rate and the basic rate through their self-assessment.
NIC letter
Your National Insurance category determines the rate you pay:
| Category | Below PT | PT – UEL | Above UEL |
|---|---|---|---|
| A | 0% | 8% | 2% |
| B | 0% | 1.85% | 2% |
| C | — | — | — |
| H | 0% | 8% | 2% |
| J | 0% | 2% | 2% |
| M | 0% | 8% | 2% |
| V | 0% | 8% | 2% |
| Z | 0% | 2% | 2% |
| F | 0% | 8% | 2% |
| I | 0% | 1.85% | 2% |
| L | 0% | 2% | 2% |
| S | — | — | — |
Monthly thresholds: LEL £533 • PT £1,048 • UEL £4,189.