Income Tax Calculator

How PAYE works

The Pay As You Earn (PAYE) system is how HMRC collects income tax and employee National Insurance contributions from your salary. Your employer calculates deductions each time you’re paid, based on your earnings to date and your tax code.

Tax is calculated cumulatively across the year. This means your total income from April 6 is assessed each month to determine whether you’re within your personal allowance or if higher rates apply.

National Insurance, however, is generally calculated on a non-cumulative basis using thresholds applied to each pay period.

HMRC uses information from previous employers and your tax code to instruct your current employer how much tax to deduct. If your income or circumstances change, HMRC may issue a new code to reflect this.

Understanding tax codes

Your tax code tells your employer how much tax-free income you’re entitled to during the tax year. It determines the amount of income tax deducted from your salary under the PAYE system.

Standard tax code

The most common tax code for employees who are entitled to the standard Personal Allowance of £12,570 is 1257L. The number 1257 represents your allowance divided by 10, and the “L” suffix means you’re eligible for the basic tax-free amount.

Common tax code prefixes and suffixes

L – You’re entitled to the standard Personal Allowance

M – You’ve received 10% of your partner’s Personal Allowance through the Marriage Allowance

N – You’ve transferred 10% of your Personal Allowance to your partner

T – Your tax code includes other calculations or restrictions (e.g. untaxed income, pension contributions)

K – Your total deductions exceed your allowances. The number indicates how much income is added to your salary before tax is calculated

BR – All income is taxed at the basic rate (20%). Usually used for second jobs or pensions when the Personal Allowance is used elsewhere

D0 – All income is taxed at the higher rate (40%). No Personal Allowance is applied

D1 – All income is taxed at the additional rate (45%). Used when income is already taxed elsewhere or you’re over the threshold

NT – No tax is deducted from your income. Typically used for non-taxable jobs or pension income

0T – You don’t have a Personal Allowance, usually because HMRC hasn’t been given enough details. Tax is deducted at the appropriate marginal rate

W1 / M1 – Week 1 or Month 1 emergency codes are also referred to as non-cumulative codes. They treat each pay period in isolation, ignoring previous earnings. Often used when starting a new job without a P45

Scottish tax codes

If you live in Scotland, your tax code will start with the letter “S” to indicate that Scottish income tax rates apply. The rest of the code functions in the same way as elsewhere in the UK, showing your personal allowance and any adjustments.

For example:

• S1257L – Indicates the standard Personal Allowance with Scottish income tax rates
• SD0 or SD1 – Used when income is taxed at the Scottish intermediate or higher rate without a Personal Allowance

Your employer will apply the correct Scottish tax bands automatically if your address on HMRC’s records is in Scotland.

How tax codes are adjusted

Your tax code may be adjusted to reflect:

• Marriage Allowance transfers between spouses
• Benefits in kind, such as a company car or medical insurance
• Unpaid tax from previous years
• Tax reliefs, such as for pension contributions or charitable donations
• Changes in employment, including multiple jobs or overlapping income sources

What to do if your code looks incorrect

HMRC issues tax codes based on the information they have. If you think your code is wrong, or you’re paying too much or too little tax, you can:

• Check your code using your HMRC Personal Tax Account
• Contact HMRC directly to query or request an update
• Provide a P45 or Starter Checklist to a new employer to avoid being placed on an emergency code

Your tax code may be updated during the year. HMRC will send you a notice (a P2 coding notice) and inform your employer, who will then apply the new code in your next payslip.

National Insurance explained

National Insurance (NI) is a mandatory deduction from earnings that helps fund certain state benefits, including the State Pension, Statutory Sick Pay, Maternity Allowance, and Jobseeker’s Allowance.

It is separate from income tax but collected through the same PAYE system by your employer.

Who pays National Insurance?

If you’re an employee aged between 16 and State Pension Age, you pay Class 1 National Insurance. These contributions are calculated automatically and deducted from your gross salary before you are paid.

If you’re over State Pension Age, you are exempt from paying employee NI, although your employer may still pay employer contributions.

2025/26 National Insurance thresholds and rates (Class 1 employees)

For most employees in the UK:

• No NI is due on earnings up to £12,570 per year (Primary Threshold)
• 8% is paid on earnings between £12,571 and £50,270
• 2% is paid on earnings above £50,270

These rates apply regardless of your income tax band.

Example (annual basis)

If you earn £60,000 per year:

• The first £12,570 is NI-free
• The next £37,700 is charged at 8% = £3,016
• The remaining £9,730 is charged at 2% = £194.60

Total NI = £3,210.60

Per-Pay-Period assessment

Unlike income tax, National Insurance is calculated on a per-period basis, not cumulatively:

• If you’re paid monthly, the thresholds are applied to each month’s earnings (e.g. £1,047.50 per month threshold)
• If you have variable income, your NI contributions may change each month, even if your total annual salary stays the same
• This means you could pay more or less NI than expected based on your annual salary alone

For example, a one-off bonus could push you above the upper threshold for that month, triggering the 2% higher rate on part of the bonus.

How other deductions affect National Insurance

National Insurance is affected by:

• Salary sacrifice pension contributions, which reduce your gross income for NI purposes
• Student loan repayments, which use your gross income before NI is deducted
• State Pension Age. Once reached, your employer stops deducting Class 1 NI from your pay

Pension contributions

Most employees in the UK are automatically enrolled into a workplace pension by their employer. This is part of the government’s auto-enrolment scheme, which aims to help more people save for retirement.

Auto-enrolment contributions

Workplace pension contributions are calculated based on your qualifying earnings – usually between £6,396 and £50,270 per year.

This band is reviewed annually and applies only to employment income, excluding other sources such as dividends or investment income.

By law, the minimum total contribution is 8% of qualifying earnings, split between the employer and employee:

• Employer must contribute at least 3%
• Employee typically contributes 5%

Some employers contribute more than the minimum. Employees can also choose to increase their contributions above the default level.

Salary sacrifice vs relief at source

How pension contributions are treated for tax purposes depends on the type of scheme your employer uses.

Salary sacrifice (also called salary exchange)

• Your gross salary is reduced before tax and National Insurance are calculated
• This lowers your taxable income, reducing both income tax and employee NI
• Your employer makes the full pension contribution on your behalf
• This method increases take-home pay slightly compared to standard contributions

Relief at source

• Pension contributions are deducted after tax
• The pension provider then claims basic rate tax relief (20%) from HMRC
• For example, if you contribute £80, HMRC adds £20 to your pension pot, making it £100
• Higher-rate taxpayers must claim additional relief through self-assessment

Some employers may also use net pay arrangements, where pension contributions are deducted from pay before tax but after NI. This method is more common in public sector schemes and for defined benefit pensions.

Qualifying earnings example

If you earn £45,000 annually:

• Your qualifying earnings = £45,000 – £6,396 = £38,604
• 8% of £38,604 = £3,088.32 total pension contribution
• If you contribute 5%: £1,930.20
• Employer contributes 3%: £1,158.12

Note: If you earn below the lower earnings threshold (£6,396), you may still be enrolled, but no minimum contributions are required unless you opt in.

Student loan repayments

If you have a student loan, repayments are automatically deducted from your salary through the PAYE system once your income exceeds the threshold for your repayment plan. The amount you repay is based on your gross income, not your take-home pay, and is calculated separately from income tax and National Insurance.

Repayment plans and thresholds

The student loan plan you’re on depends on when and where you studied. Each plan has its own repayment threshold and rate.

Plan 1 This applies to English, Welsh and Northern Irish students who started undergraduate courses before 1 September 2012. Repayments are 9% of income over £24,990 per year.

Plan 2 This applies to English and Welsh students who started undergraduate courses between 1 September 2012 and 31 July 2023. Repayments are 9% of income over £27,295 per year.

Plan 4 This applies to Scottish students and replaced Plan 1 in Scotland. Repayments are 9% of income over £31,395 per year.

Plan 5 This applies to English and Welsh students who started undergraduate courses on or after 1 August 2023. Repayments are 9% of income over £25,000 per year.

Postgraduate loans These apply to Master’s and doctoral loans, regardless of your undergraduate plan. Repayments are 6% of income over £21,000 per year.

You may be repaying both an undergraduate and a postgraduate loan at the same time. In that case, both deductions are taken together.

You will repay 9% for your undergraduate loan and 6% for your postgraduate loan, resulting in a combined deduction of 15% on income above the relevant thresholds.

How repayments are calculated

Student loan deductions are based on your earnings in each pay period.

If you’re paid monthly, the annual repayment threshold is divided by 12 to determine how much you can earn each month before repayments apply.

The applicable percentage is then applied to the income above that threshold.

For example, if you’re on Plan 2 and earn £35,000 per year, your income exceeds the £27,295 threshold by £7,705. You would repay 9% of that amount over the year, which equates to approximately £57.79 per month.

Salary sacrifice and gross income

Student loan repayments are calculated using your gross pay before tax, even if you reduce your taxable income through salary sacrifice pension contributions.

This means that salary sacrifice will not reduce the income used to determine your loan repayments, even though it reduces income tax and National Insurance.

This distinction often surprises employees, as pension contributions can lower other deductions but leave student loan repayments unchanged.

When repayments stop

Your student loan repayments stop if:

• Your income falls below the repayment threshold
• Your loan is fully repaid
• The loan is written off – this happens after a set number of years, depending on which plan you’re on and whether you’ve repaid it in full

The write-off period varies by plan and ranges from 25 to 40 years from the April following the month you became eligible to repay.

Self-employed repayments

If you are self-employed or complete a Self Assessment tax return, student loan repayments are not taken automatically through PAYE. Instead, you’ll need to report your income and make repayments through your tax return, based on the same thresholds and rates.

Tax on bonuses and irregular income

Bonuses, commissions, and other one-off payments, such as performance bonuses, incentive awards, or signing payments, are taxed through PAYE in the same way as regular salary.

However, the way PAYE and National Insurance are calculated can make these payments appear more heavily taxed than expected.

PAYE and bonus timing

PAYE works on a cumulative basis, meaning your employer calculates tax based on your total income since the start of the tax year (6 April).

When a large bonus is added to your pay, it can temporarily push part of your income into a higher tax band for that pay period. This increases the amount of tax deducted in that month, even if your total annual income would not usually reach that level.

For example, if your regular salary is £3,000 per month and you receive a £5,000 bonus, your total gross pay for the month is £8,000.

Because tax is calculated cumulatively, that higher total may push you into the higher-rate tax band for that pay period, resulting in a larger than usual deduction.

Non-cumulative tax codes (Month 1 / Week 1)

To manage this, employers often apply a non-cumulative tax code to the bonus payment, known as Month 1 or Week 1 basis. This instructs the payroll system to ignore previous earnings and apply tax as if it were your first month of work in the tax year.

This can reduce sudden tax increases caused by cumulative calculations, but it may also lead to under- or overpayment.

HMRC typically corrects any discrepancy automatically through future payslips or at the end of the tax year.

National Insurance on bonuses

National Insurance (NI) is calculated per pay period, not cumulatively. If a bonus increases your earnings for that period, your NI contribution may rise as well. NI rates for employees are:

• 0% on income below £12,570 per year (approximately £1,047.50 per month)
• 8% on income between £12,570 and £50,270 per year (approx. £4,189.17 per month)
• 2% on income above £50,270

A one-off payment that increases your monthly earnings can temporarily move part of your income into the higher 2% band, even if your regular salary would not.

Student loan and pension deductions

Student loan repayments also apply to bonus income. If your earnings for the month exceed your repayment threshold, a deduction is made:

• 9% of income above the threshold for undergraduate loans (Plan 1, 2, 4, or 5)
• 6% for postgraduate loans

Pension contributions are typically calculated as a percentage of gross earnings. If your contribution is based on total pay rather than qualifying earnings, a bonus will increase your pension deduction for that period.

Where salary sacrifice is used, the structure of your scheme will determine whether bonuses are included in sacrificed earnings.

Other Payslip Deductions

In addition to income tax, National Insurance, pension contributions, and student loan repayments, you may see other deductions on your payslip.

These are usually specific to your employer, your personal circumstances, or legal obligations, and are not calculated by standard take-home pay estimators, including this one.

These deductions reduce your take-home pay but do not affect your gross salary or taxable income.

Court orders and attachment of earnings

A court order or attachment of earnings order (AEO) is a legal instruction requiring your employer to deduct money directly from your salary to repay a debt.

These are typically issued by the courts or local authorities and may relate to:

• Unpaid fines
• Council tax arrears
• Benefit overpayments
• Consumer debt (e.g. credit cards or loans)

The amount deducted depends on your level of earnings and is subject to protected earnings limits.

The deduction will appear on your payslip with a label such as AEO, Deduction of Earnings Order, or Court Order.

Child maintenance payments

If you are required to pay child maintenance through the Child Maintenance Service (CMS), deductions may be taken directly from your pay under a Deduction from Earnings Order (DEO).

These are legally binding and apply only to income from employment. Child maintenance deductions are separate from income tax and NI and do not reduce your taxable income.

They are usually based on your net income and may include regular payments and arrears.

Company loans and salary advances

If your employer has issued a season ticket loan, cycle-to-work loan, or other type of salary advance, repayments may be taken in instalments from your pay.

These deductions are agreed upon between you and your employer and do not follow standard statutory rules.

Such deductions are often labelled Loan Repayment, Travel Loan, or Salary Advance, and will continue until the balance is fully repaid.

Union subscriptions

If you are a member of a recognised trade union and pay your membership fee via payroll, it will appear as a separate deduction. Union subscriptions are usually deducted after tax and National Insurance and are not included in your gross or taxable pay.

Some union fees may qualify for limited tax relief, but this must be claimed separately through HMRC.

These deductions vary significantly between employers and individuals. While they affect your net pay, they are not part of HMRC’s tax calculation and therefore are not included in this calculator’s results.

If you are unsure about a deduction on your payslip, contact your payroll department for clarification.

Tax-free benefits and allowances

In addition to your salary, your employer may provide benefits or perks as part of your overall remuneration package. Some of these benefits are tax-free, while others are treated as taxable benefits-in-kind and may affect how much income tax you pay.

What are tax-free benefits?

Certain benefits are exempt from income tax and do not reduce your personal allowance. These can be provided without increasing your taxable income and will not appear in your tax code.

Common examples include:

Employer pension contributions

Contributions made directly by your employer into your workplace pension scheme are not taxable. They do not count as part of your gross income and do not reduce your Personal Allowance.

Trivial benefits under £50

Gifts or perks provided by your employer that are worth £50 or less, are not cash or cash vouchers, and are not in return for work or performance, are usually exempt from tax. Examples include small seasonal gifts, birthday vouchers or occasional lunches.

Employer-paid life assurance

Group life assurance schemes, such as “death in service” benefits, are typically tax-free for the employee, provided the benefit is within specified limits and structured through a registered scheme.

Workplace nursery provision

If your employer provides access to an on-site or directly contracted nursery, this benefit is fully tax-exempt and does not count towards your taxable income.

These benefits offer a tax-efficient way to enhance your overall compensation without increasing your liability to HMRC.

Taxable benefits

Other benefits provided by your employer are taxable and may increase the amount of income tax you pay. These are known as benefits-in-kind and are typically declared to HMRC by your employer.

Common taxable benefits include:

Company cars or vans for personal use

The taxable value depends on the vehicle’s list price, CO₂ emissions and fuel type.

Private medical insurance

If your employer pays for your health insurance, this is treated as a taxable benefit and will be included in your tax code.

Interest-free or low-interest loans over £10,000

Loans such as season ticket advances are taxable if they exceed the HMRC threshold.

Accommodation provided by your employer

If you live rent-free or below market value in accommodation supplied by your employer, the difference may be treated as a taxable benefit.

How taxable benefits affect your tax code

HMRC adjusts your tax code to collect tax on most benefits-in-kind through PAYE. Your tax code is reduced to reflect the value of the benefit, meaning less of your salary is tax-free.

For example, if your company car benefit is valued at £3,000 per year, your Personal Allowance may be reduced by that amount, resulting in more tax being deducted from your salary.

Employers report taxable benefits to HMRC using a P11D form or through payrolling of benefits. You’ll typically receive a copy of your P11D each year if applicable.

Marriage Allowance and tax code transfers

Marriage Allowance is a government scheme that allows some married couples and civil partners to reduce their overall income tax bill by transferring part of the unused Personal Allowance from one partner to the other.

Who can use Marriage Allowance?

To qualify, both partners must meet the following conditions:

• You are married or in a civil partnership. Cohabiting couples do not qualify.
• One partner has income below the Personal Allowance threshold (£12,570 in 2025/26), meaning they do not pay income tax.
• The other partner is a basic rate taxpayer. This means income between £12,571 and £50,270 in the rest of the UK, or up to £43,662 if you are a Scottish taxpayer.

If these conditions are met, the partner with unused allowance can transfer up to £1,260 of their Personal Allowance to their spouse or civil partner.

How it affects tax

Transferring £1,260 of allowance reduces the recipient’s taxable income by the same amount. This results in a tax saving of up to £252 per year (20 percent of £1,260).

The saving applies only to income tax, not National Insurance or student loan deductions. The higher-earning partner will see the benefit applied via their tax code.

For example:

• A standard code of 1257L may change to 1370M, reflecting the additional allowance
• The lower-earning partner may receive a reduced or adjusted code, such as 1147N

These codes ensure the correct tax is collected through PAYE. If the transfer is made partway through the tax year, HMRC will usually backdate the change and issue a refund where applicable.

Differences for Scottish taxpayers

In Scotland, the basic rate of income tax starts at a lower income threshold than in the rest of the UK and includes additional bands such as the starter and intermediate rates. However, Marriage Allowance still applies in the same way.

The key difference is that to qualify, the higher-earning partner must fall within the Scottish basic rate band, which for 2025/26 applies to income up to £43,662.

The tax benefit from Marriage Allowance remains capped at £252 per year because it is calculated using the UK basic rate of 20 percent, even if your Scottish tax rate is different.

Important notes:

• Marriage Allowance is not automatic. It must be applied for via HMRC, either online or by phone.
• Once granted, it continues automatically each year, unless cancelled or if circumstances change.
• If the lower-earning partner becomes a taxpayer in future, the allowance may no longer be beneficial and should be withdrawn.
• Claims can be backdated for up to four previous tax years, provided you met the eligibility criteria throughout.

Understanding your year-end summary

At the end of each tax year (which runs from 6 April to 5 April), your employer is required to provide documentation that summarises your income and deductions for the year. These documents are important for reviewing your tax position and may be required for loan applications, tax claims, or HMRC queries.

The P60

A P60 is a statutory document that shows your total earnings and deductions for the tax year from a particular employment. You’ll receive one from each employer you were working for on 5 April.

Your P60 includes:

• Taxable pay to date. The total income HMRC has assessed for tax purposes, after salary sacrifice and before tax reliefs
• Income tax paid. The total amount of PAYE income tax deducted from your salary
• National Insurance contributions. The total Class 1 NI you paid during the year
• Final tax code used. Showing how your tax was calculated
• Employer PAYE reference number

The P60 is usually issued by 31 May following the end of the tax year. Keep it safely, as it may be needed when applying for mortgages, student finance, or reclaiming overpaid tax.

The P11D

If your employer provided you with benefits in kind. such as a company car, private medical insurance, or interest-free loans. these will be reported on a separate form known as a P11D.

The P11D outlines the cash equivalent value of these benefits, which HMRC uses to adjust your tax code or calculate additional tax due. If your employer has opted to “payroll” your benefits, the value of these benefits will not appear on a P11D, as the tax has already been accounted for via your payslips.

Why these documents matter

Your P60 and (if applicable) P11D together give a complete picture of your annual income, tax, and benefits.

They are useful for:

• Checking for over- or underpayments of tax
• Ensuring your student loan repayments and pension contributions were correctly deducted
• Comparing against HMRC’s records via your Personal Tax Account
• Providing evidence for tax rebate claims or mortgage applications

If you believe your P60 or P11D is incorrect or missing, contact your employer’s payroll department promptly. Errors can lead to incorrect tax calculations in future years.

Note: This content is for general information only. It does not constitute personal tax advice and may not reflect the most recent legislative changes. For full guidance, consult HMRC or a qualified tax professional.