The UK Tax System Explained for Expats and Newcomers

The UK's tax system has a reputation for complexity — and it earns it. But once you understand the core mechanics of PAYE, National Insurance and the personal allowance, day-to-day tax life becomes largely automatic. This guide is written for people moving to the UK from New Zealand, Australia, Canada or elsewhere, with plain-English explanations of every key concept.

PAYE — Pay As You Earn

Most employees in the UK pay tax through PAYE, operated by HM Revenue & Customs (HMRC). Your employer deducts income tax and National Insurance from each pay cheque before it reaches your bank account — you don't file an annual return if your only income is from employment.

HMRC sends your employer a tax code that tells them how much of your income is tax-free. The most common code is 1257L — meaning your personal allowance is £12,570 (£12,570 × 10 = £125,700, and the "L" suffix confirms the standard allowance).

Personal allowance

For 2025–26, the personal allowance is £12,570 — you pay no income tax on the first £12,570 of earnings. This allowance tapers for incomes above £100,000: for every £2 you earn above £100,000, your allowance reduces by £1. By £125,140, the allowance is zero — creating an effective 60% marginal tax rate in the £100k–£125,140 band (40% income tax + losing 20% worth of allowance).

Income tax bands (England, Wales, Northern Ireland 2025–26)

• £0–£12,570: 0% (Personal Allowance)
• £12,571–£50,270: 20% (Basic Rate)
• £50,271–£125,140: 40% (Higher Rate)
• Over £125,140: 45% (Additional Rate)

Scotland has its own bands (different thresholds and a starter rate of 19%).

National Insurance Contributions

National Insurance (NI) is a separate deduction that funds the NHS, state pension and other benefits. In 2025–26, employees pay:

• 8% on earnings between £12,570 and £50,270
• 2% on earnings above £50,270

Employers also pay 13.8% NI on employee earnings above £9,100 (the Secondary Threshold) — this is on top of your gross salary and doesn't appear on your payslip.

After 35 qualifying years of NI contributions, you're entitled to the full State Pension (£221.20/week in 2025–26). If you're a new arrival with fewer qualifying years, you can make voluntary contributions to top up your record.

A worked example: £60,000 salary

• Gross salary: £60,000
• Personal allowance: £12,570 (tax free)
• Basic rate (20% on £37,700): £7,540
• Higher rate (40% on £9,730): £3,892
• Total income tax: £11,432
• NI (8% on £37,700 + 2% on £9,730): £3,213
• Total deductions: £14,645
• Take-home pay: £45,355 (£871/week)

Student loan deductions

UK student loans are repaid through payroll. Plan 2 (most graduates post-2012) repay 9% of income above £27,295. Plan 5 (post-August 2023 undergraduates) repay 9% above £25,000. These repayments appear on your payslip as a separate deduction after tax and NI.

Other common deductions

• Pension: Most employers auto-enrol you in a workplace pension. The minimum is 5% employee + 3% employer under auto-enrolment rules.
• Salary sacrifice: Popular for pension, childcare vouchers and cycle-to-work. Reduces your gross salary for tax/NI purposes — very tax-efficient.
• Benefits in kind: Company car, private health insurance etc. are taxed as "benefits in kind" — HMRC adjusts your tax code to account for them.

Self-assessment

If you're employed and have no other income, you typically don't need to file a tax return. But you must register for self-assessment if you: are self-employed, have rental income, earn over £100,000, have untaxed income (dividends above £500), or have any other income not taxed at source.

Arriving in the UK mid-year

The UK tax year runs 6 April to 5 April. If you arrive mid-year, you'll get the full personal allowance for that year — meaning your first UK tax year is often very tax-efficient, as you may have little UK income in the period before you arrived. HMRC can refund over-paid tax if your code is wrong; use the GOV.UK "Check your Income Tax" tool.

Use our take-home pay calculator to estimate your UK take-home before accepting a job offer.