How UK Income Tax and National Insurance Actually Work
UK take-home pay is reduced by Income Tax (20% basic rate, 40% higher rate, 45% additional rate, applied above a tax-free Personal Allowance) and employee National Insurance (8% on a middle band of earnings, 2% above that). Earning over £100,000 also gradually reduces the Personal Allowance itself, adding a lesser-known extra layer to the calculation.
A UK payslip involves more moving parts than a single tax rate — the Personal Allowance, three Income Tax bands, and National Insurance each apply differently, and a high earner faces a quirk in the system that catches many people by surprise.
The Personal Allowance and Income Tax bands
Every UK taxpayer gets a Personal Allowance — £12,570 for the 2024/25 tax year — that isn't taxed at all. Above that, the Basic Rate of 20% applies up to £50,270, the Higher Rate of 40% applies from £50,270 to £125,140, and the Additional Rate of 45% applies above £125,140.
Only the income within each band is taxed at that band's rate — moving into a higher band doesn't retroactively tax everything at the higher rate, only the portion that falls within it.
National Insurance on top
Employee National Insurance is calculated separately from Income Tax: 8% on earnings between the Primary Threshold (£12,570) and the Upper Earnings Limit (£50,270), and 2% on anything above that. Unlike Income Tax, National Insurance doesn't have a fully tax-free allowance at the very bottom in the same structural way, though the thresholds are aligned closely with the Personal Allowance.
The £100,000 Personal Allowance taper — a genuine quirk
Above £100,000 of income, the Personal Allowance itself starts shrinking — by £1 for every £2 earned above that threshold — reaching £0 once income hits £125,140. This creates an unusually high effective marginal tax rate in that specific £100,000–£125,140 band, since income there is taxed at 40% while simultaneously losing tax-free allowance, sometimes described informally as a 60% effective rate in that range.