Income Tax Explained for 2026/27
Income Tax is charged on taxable income received by individuals. This can include employment income, self-employment profits, pensions, rental income, savings interest and dividends.
Not every type of income is taxed in the same way. Separate allowances and rates can apply, and Scottish taxpayers have different bands for non-savings, non-dividend income.
The Personal Allowance
For 2026/27, the standard Personal Allowance is £12,570. This is the amount most people can receive before paying Income Tax.
The allowance reduces by £1 for every £2 of adjusted net income above £100,000 and is completely removed at £125,140. Pension contributions and Gift Aid can affect adjusted net income, so planning may be valuable.
Income Tax Rates
For England, Wales and Northern Ireland, the main 2026/27 rates are:
- 20% basic rate from £12,571 to £50,270
- 40% higher rate from £50,271 to £125,140
- 45% additional rate above £125,140
These figures assume the standard Personal Allowance. Different rates apply to dividends, while savings income may be covered by the Personal Savings Allowance.
How Is Income Tax Collected?
Employees and pensioners usually pay through PAYE using a tax code. Sole traders, landlords, company directors and people with other untaxed income may need to file a Self Assessment return.
Self Assessment tax is normally due by 31 January following the end of the tax year. Some taxpayers must also make payments on account on 31 January and 31 July.
Income Tax is separate from National Insurance. A person may have National Insurance liabilities even where their income is within the Personal Allowance.
Marriage Allowance, the trading allowance, property allowance and Blind Person’s Allowance may reduce tax in qualifying cases. The dividend allowance and Personal Savings Allowance use a 0% rate rather than removing the income, so the income can still affect tax bands and entitlement to other allowances.
Tax codes should also be checked whenever employment, benefits or pension income changes.
Check the Complete Position
Your tax calculation can be affected by expenses, pension contributions, benefits, student loans, the High Income Child Benefit Charge and income from several sources. Looking at one payslip or income stream may not show the complete liability.
GMS Accountants helps individuals and sole traders in Cambridge and Nottingham understand their Income Tax and complete accurate returns. Contact us for clear personal tax advice.
