Income tax and tax codes explained
How income tax bands work in 2026/27, what your tax code actually encodes, and the 60 percent trap hiding above £100,000.
The 2026/27 bands
In England, Wales and Northern Ireland you pay no tax on the first £12,570 (the personal allowance), 20 percent up to £50,270, 40 percent up to £125,140 and 45 percent above that. Crucially these are marginal rates: crossing into a higher band only taxes the income above the line, never your whole salary. All thresholds are frozen until 2030/31, which quietly raises taxes each year as wages grow – the effect known as fiscal drag. Scotland uses six different bands – see the Scottish income tax calculator.
What a tax code encodes
Your tax code tells your employer how much tax-free pay to give you. The standard code 1257L is simply the £12,570 allowance with the last digit removed. Common variations:
- BR / D0 / D1 – all pay taxed at 20, 40 or 45 percent, normal for second jobs.
- K codes – untaxed income (often company benefits) exceeds your allowance, so extra notional pay is added.
- W1 / M1 / X suffixes – emergency, non-cumulative codes used when HMRC lacks your history; common after a job change without a P45 and a frequent cause of overpaid tax.
- M / N suffixes – Marriage Allowance transferred in or out.
- S or C prefix – Scottish or Welsh rates apply.
The 60 percent trap
Between £100,000 and £125,140 the personal allowance is withdrawn at £1 for every £2 earned. Each £100 in that band suffers £40 tax plus £20 from the lost allowance – an effective 60 percent rate (62 percent with NI). Pension contributions that bring income back under £100,000 are exceptionally tax-efficient here; the pension calculator shows the effect.
See the bands applied to your own salary in the income tax calculator, or the full deduction picture in the take-home pay calculator.