Income Tax
Income Tax is the tax you pay on earnings.
What it means
Income Tax is the tax you pay on earnings. In the UK, we have a tiered income tax system, as you earn more; more of your salary is taxed at higher rates. For example earnings between £12,571 to £50,270 are taxed at 20%, but earnings between £50,271 to £125,140 are taxed at 40%.
Say you received a pay rise from £45,000 to £55,000. Of the £10,000 extra pay, £5,270 would be taxed at 20% and £4,730 would be taxed at 40%.
Why it matters
Understanding Income Tax helps you make sense of your payslip and avoid common tax myths.
Many people incorrectly think a pay rise can leave them worse off because of tax bands, but that's not how the system works.
Can a pay rise reduce my take-home pay?
Generally no. Only the income within each tax band is taxed at that band's rate.