Reference
UK tax glossary
The terms that appear on your payslip and in our calculators, explained simply.
- Personal allowance
- The amount of income you can earn tax-free each year: £12,570 for 2026/27. It reduces by £1 for every £2 of adjusted net income above £100,000 and is zero at £125,140.
- Marginal rate
- The tax (plus NI and loan repayments) on your next pound of income. It is often higher than your effective rate.
- Effective rate
- Total tax, National Insurance and loan repayments divided by gross pay.
- National Insurance (NI)
- A contribution on earnings that builds entitlement to benefits like the State Pension. Employee Class 1 NI is 8% between £12,570 and £50,270 and 2% above (category A).
- Employer NI
- National Insurance paid by your employer on top of your salary, 15% above £5,000 a year for most employees.
- PAYE
- Pay As You Earn, the system employers use to deduct income tax and NI from your pay.
- Tax code
- A code such as 1257L that tells your employer how much tax-free pay you get. 1257L means a £12,570 allowance. BR taxes all income at 20%, D0 at 40%, 0T gives no allowance and K codes add to your taxable income. A leading S means Scottish rates.
- Net pay arrangement
- A workplace pension method where contributions are taken before income tax is calculated. It saves tax but not National Insurance.
- Salary sacrifice
- You give up part of your salary in return for an employer pension contribution. It reduces income tax and employee and employer National Insurance.
- Student loan plans
- Plans 1, 2, 4 and 5 are repaid at 9% of income above a threshold; the postgraduate loan is 6% above £21,000. Which plan you are on depends on when and where you studied.
- 60% tax trap
- Between £100,000 and £125,140 you lose £1 of personal allowance for every £2 earned, so the effective marginal rate on that income is 60% (62% including NI).
- High Income Child Benefit Charge
- A tax charge equal to 1% of Child Benefit for each £200 of adjusted net income above £60,000, reaching 100% at £80,000.
- Class 4 NI
- National Insurance paid by the self-employed on profits: 6% between £12,570 and £50,270 and 2% above.
- Statutory Maternity Pay (SMP)
- Up to 39 weeks of pay: 6 weeks at 90% of average earnings, then the lower of the flat rate or 90% for 33 weeks.
- Adjusted net income
- Taxable income less gross pension contributions and Gift Aid. It decides your personal allowance taper and Child Benefit charge.