Understanding the UK Tax System (HMRC)
Your take-home wage in England, Wales, and Northern Ireland is determined by two primary statutory deductions:
- Personal Allowance (£12,570): You pay zero Income Tax on the first £12,570 of your earnings. Note: For income above £100,000, this allowance decreases by £1 for every £2 of income, disappearing entirely at £125,140.
- Basic Rate (20%): Applies to taxable income from £12,571 to £50,270.
- Higher Rate (40%): Applies to taxable income from £50,271 to £125,140.
- Additional Rate (45%): Applies to taxable income over £125,140.
- National Insurance (NI): Employees pay 8% on income between £12,570 and £50,270, and 2% on any income earned above £50,270.
Frequently Asked Questions
How do student loan repayments work on paychecks?
Student loans are deducted at source like tax, but only on earnings above your specific plan's threshold. For Plan 2 graduates, you repay 9% on income above £27,295. If you earn £35,000, you pay 9% of £7,705 (£693/year or £57.75/month).
How does salary sacrifice pension save tax?
Under salary sacrifice, your pension contribution is deducted before Income Tax and National Insurance are computed. This saves you both 20%–40% Income Tax AND 8% National Insurance on every contributed pound.