UK Tax Bands Explained Simply for Employees

Progressive tax means slices, not one flat rate

A frequent misunderstanding is that moving into a higher tax band means your whole salary is taxed at the higher rate. It does not. Only the portion above the threshold moves to the next rate.

This matters because salary decisions near thresholds should be based on net gain, not fear of entering a new band. In most cases, earning more still means taking home more, even if the marginal slice is taxed at a higher rate.

When comparing offers, use effective tax rate and monthly take-home rather than headline salary only. That gives a more honest view of quality of life impact.

• Each band taxes only income in that band.
• Crossing a band does not re-tax earlier income.
• Use net monthly difference for decision-making.

Personal allowance taper and why it feels sharp

The personal allowance taper between GBP 100,000 and GBP 125,140 creates an effective high marginal burden because allowance is withdrawn while higher rate tax also applies. This catches many people by surprise.

For planning, test salary, bonus and pension contribution scenarios in one place. Pension salary sacrifice can reduce taxable pay and sometimes improve net outcomes in taper territory.

The right move depends on your full context, but visibility is the first step. If you cannot model it quickly, you are making decisions with incomplete numbers.

• Allowance is reduced by GBP 1 for every GBP 2 over GBP 100,000.
• Allowance can be fully removed by GBP 125,140.
• Pension strategy can materially change take-home outcomes.