A practical glossary for salary planning and offer comparisons. Every definition includes the actual 2026/27 figures so you can apply it to your own situation.
Written and reviewed by James Whitfield · Last reviewed: July 2026 · Methodology
PAYE is the system UK employers use to deduct Income Tax and National Insurance from your salary before it reaches your bank account. Your employer applies your tax code each pay period to calculate how much to withhold. If you are over- or under-taxed early in the year, later payslips automatically correct the balance. Most employees on a standard salary never need to submit a Self Assessment return. PAYE covers regular salary, overtime, bonuses and commission.
Practical relevance: if your PAYE deductions look wrong after starting a new job mid-year, the issue is almost always the tax code. Check your payslip's tax code and compare it to what HMRC says it should be.
The personal allowance is the amount you can earn each tax year before Income Tax is due. For 2026/27 it is £12,570. Your tax code shows it as 1257L — the number is the allowance divided by ten. No Income Tax is due on the first £12,570 of earnings.
Above £100,000 the allowance tapers: you lose £1 of allowance for every £2 of income above the threshold. The allowance hits £0 at £125,140. In that taper zone the effective marginal Income Tax rate is 60%. Each extra pound is taxed at 40% and also erodes allowance that was shielding other income.
Example: a salary of £110,000 has a reduced allowance of £7,570 — £10,000 above £100,000 withdraws £5,000. A pension contribution of £10,000 or more can restore the full allowance.
The marginal tax rate is the rate applied to your next pound of income. It does not apply to all your income. UK Income Tax uses a progressive band structure — only the portion of income within each band is taxed at that band's rate. The 2026/27 bands for England/Wales/NI are:
Someone earning £55,000 pays 40% only on the £4,730 above £50,270. Their effective deduction rate is much lower than 40%.
Practical relevance: the marginal rate tells you how much of a pay rise or bonus you will keep. At the basic rate, each extra £1,000 gross adds roughly £800 net. At the higher rate, each extra £1,000 gross adds roughly £580 net (after 40% tax and 2% NI).
The effective deduction rate is total deductions (Income Tax + NI) divided by gross salary. It tells you what percentage of gross pay you actually keep. It is always lower than the marginal rate because lower-income slices are taxed at lower rates, or not at all.
| Gross salary | Income Tax | NI | Effective rate | Take-home |
|---|---|---|---|---|
| £25,000 | £2,486 | £1,234 | 14.9% | £21,280 |
| £35,000 | £4,486 | £1,794 | 17.9% | £28,720 |
| £50,000 | £7,486 | £3,016 | 21.0% | £39,498 |
| £60,000 | £11,432 | £3,197 | 24.4% | £45,371 |
| £80,000 | £19,432 | £3,557 | 28.7% | £57,011 |
| £100,000 | £27,432 | £3,917 | 31.3% | £68,651 |
Estimates using 2026/27 rates, tax code 1257L, NI category A, no student loan, no pension. England/Wales/NI.
Salary sacrifice is a formal payroll arrangement where you give up part of your gross salary before Income Tax and National Insurance are calculated. Usually this is in exchange for a pension contribution. The contribution reduces your gross pay before any deductions apply, so you save both Income Tax and employee NI.
At the basic rate, a £1,000 salary sacrifice reduces your gross by £1,000 but cuts take-home by only around £720 — saving £200 in Income Tax and £80 in NI. At the higher rate, the same £1,000 sacrifice costs you around £580 in take-home.
Standard pension contributions give Income Tax relief but not NI relief. Salary sacrifice gives both. For a basic-rate taxpayer that is about 8% more per £1 contributed. The NI saving is smaller at the higher rate, but still worth having.
Caution: salary sacrifice reduces your contractual salary. That can affect mortgage affordability assessments, statutory maternity/paternity pay and life assurance linked to salary. Check these before opting into a large sacrifice amount.
National Insurance is a separate deduction from Income Tax. It has its own thresholds and rates. Employee Class 1 NI rates for 2026/27:
NI rates are the same across all UK regions. NI is calculated on a pay-period basis (weekly or monthly), not cumulatively like Income Tax. An unusually high-pay month can result in higher NI than you might expect.
At £50,000, annual employee NI is £3,016. At £60,000 it is £3,197. The 2% upper rate on the extra £10,000 adds only £200 — far less than the 40% higher-rate Income Tax on the same slice.
Employer NI is separate (13.8% above the Secondary Threshold, £9,100/year). It does not reduce your take-home directly but it does affect the total cost your employer pays.
Student loan repayments are deducted by PAYE on top of Income Tax and NI. The plan you are on depends on when and where you studied. 2026/27 thresholds:
| Plan | Who it covers | Threshold | Rate |
|---|---|---|---|
| Plan 1 | Pre-2012 England/Wales, Northern Ireland, some Scottish | £26,900 | 9% |
| Plan 2 | English/Welsh, started 2012–2022 | £29,385 | 9% |
| Plan 4 | Scottish students (post-2012) | £33,795 | 9% |
| Plan 5 | England, started from September 2023 | £25,000 | 9% |
| Postgraduate Loan | Masters/PhD loans | £21,000 | 6% |
Example: Plan 2 at £40,000 gross gives repayments of 9% × (£40,000 − £29,385) = £955/year or £80/month. If you hold both an undergraduate plan and a Postgraduate Loan, both are calculated separately and deducted at the same time.
A tax code tells your employer how much personal allowance to apply when calculating PAYE deductions. The standard code for 2026/27 is 1257L. The number (1257) is the personal allowance divided by ten. The letter (L) means you get the standard personal allowance.
Common code variations:
If your income is above £100,000, HMRC issues a reduced tax code to reflect the tapered personal allowance. At £110,000, the code would be approximately 757L. A wrong tax code means wrong monthly deductions. Check your payslip and compare it with your HMRC Personal Tax Account.
The UK tax year runs from 6 April to 5 April the following year. The current tax year is 2026/27 (6 April 2025 – 5 April 2026). HMRC announces rate changes for the following year in the Budget, typically in the autumn or spring.
All rates, thresholds and take-home figures on this site use 2026/27 values. Prior-year figures are not directly comparable because bands and thresholds change each year.
A P60 is an end-of-year summary of your earnings and deductions, issued by your employer in May or June. It shows total gross pay, total Income Tax paid and total NI paid. Use it to reconcile your deductions, complete a Self Assessment return, or support a mortgage or rental application.
A P45 is issued when you leave a job. It shows earnings and tax paid to that date. Pass it to your new employer so they can set your tax code correctly. Without one, your new employer may use an emergency code (1257L W1/M1) that taxes each pay period independently. That can mean overpayment in your first few months.
Gross pay is your salary before any deductions. Net pay is what remains after Income Tax, National Insurance, student loan repayments and pension contributions. UK job adverts quote gross annual salary. The net amount you receive is always lower.
A gross salary of £40,000 in England gives net pay of approximately £31,060/year (£2,588/month) under 2026/27 default PAYE assumptions. That is an effective deduction rate of around 22.3%. The gap between gross and net widens at higher salaries as more income falls into higher bands.
Use the calculator and salary pages to see how these terms translate into real £ figures for your gross pay.