UK tax and payslip glossary

Plain English definitions of the terms you will encounter on your payslip, P60, and tax correspondence.

A

Additional rate: The highest UK income tax rate of 45%, applied to taxable income above £125,140 in 2026/27.
Adjusted net income: Your total income for tax purposes after deducting reliefs such as pension contributions and Gift Aid donations. Used by HMRC to assess your personal allowance entitlement and child benefit tax charge.
Annual allowance (pension): The maximum amount you can contribute to pension schemes in a tax year and still receive tax relief. The standard annual allowance for 2026/27 is £60,000 (or 100% of your earnings, whichever is lower).
Auto-enrolment: The legal requirement for employers to automatically enrol eligible workers into a workplace pension scheme. Employees must earn more than £10,000 per year and be aged between 22 and State Pension age. Workers can opt out but employers must re-enrol them every three years.

B

Balancing payment: A payment made through Self Assessment to settle any tax owed after accounting for payments on account. Due by 31 January following the end of the tax year.
Basic rate: The standard UK income tax rate of 20%, applied to taxable income between £12,571 and £50,270 in 2026/27 for England, Wales and Northern Ireland taxpayers.
Benefits in kind (BIK): Non-cash benefits provided by an employer, such as a company car, private health insurance, or a season ticket loan. Most benefits in kind are taxable and are reported on a P11D form. They are subject to Class 1A National Insurance (13.8%) paid by the employer.

C

Class 1 NI: National Insurance contributions paid by employees and employers on earnings from employment. Employee Class 1 is deducted through PAYE; employer Class 1 is paid separately by the employer.
Class 2 NI: A flat-rate National Insurance contribution paid by the self-employed at £3.45 per week in 2026/27 on profits above £12,570. Counts towards State Pension entitlement.
Class 4 NI: National Insurance contributions paid by self-employed workers on their annual profits. The rate for 2026/27 is 6% on profits between £12,570 and £50,270, and 2% above that.

D

Dividend allowance: The amount of dividend income you can receive each tax year without paying dividend tax. For 2026/27, the dividend allowance is £500.

E

Earnings threshold: The income level above which a deduction or obligation begins. For example, the employee NI primary threshold (£12,570) is the earnings threshold above which employee National Insurance becomes due.
Effective tax rate: The percentage of your total gross income paid in tax (income tax and National Insurance combined). Unlike the marginal rate, the effective rate reflects your actual average tax burden across your whole income.
Employment Allowance: A relief that allows eligible employers to reduce their employer National Insurance bill by up to £10,500 per tax year in 2026/27. Not available to sole director companies with no other employees.
Employer National Insurance: Secondary Class 1 NI contributions paid by employers on each employee's earnings above the secondary threshold (£5,000 in 2026/27). The rate for 2026/27 is 15%. Not deducted from employee pay.

F

Fiscal drag: The gradual increase in tax burden caused by frozen thresholds combined with rising wages. When wages grow with inflation but tax thresholds do not, more income falls into higher bands without any formal tax increase.

G

Gift Aid: A scheme that allows UK charities to reclaim basic rate income tax on donations from taxpayers. Donors who are higher or additional rate taxpayers can claim back the difference through Self Assessment.
Gross pay / gross salary: Your total earnings before any deductions. This includes basic salary, overtime, bonuses, and taxable benefits in kind.

H

Higher rate: The UK income tax rate of 40%, applied to taxable income between £50,271 and £125,140 in 2026/27 for England, Wales and Northern Ireland. The Scottish higher rate is 42%.
HMRC: His Majesty's Revenue and Customs. The UK government department responsible for collecting taxes, paying certain state benefits, and enforcing tax and customs laws.

I

IR35: Off-payroll working rules (known informally as IR35) designed to ensure contractors who work like employees pay similar tax and National Insurance as employed workers. Applies mainly to workers providing services through a personal service company (PSC).
ISA: Individual Savings Account. A tax-efficient savings or investment wrapper where interest, dividends and capital gains are free from UK tax. The annual ISA subscription limit for 2026/27 is £20,000.

M

Marginal tax rate: The rate of tax applied to the last pound of income you earn. Unlike the effective rate, the marginal rate can differ significantly from your average rate — for example, earners between £100,000 and £125,140 face a 60% effective marginal rate due to the personal allowance taper.

N

National Insurance number (NI number / NINO): A unique reference number in the format AB123456C used to record National Insurance contributions and entitlement to State benefits. Required by your employer when you start a job.
Net pay / net salary / take-home pay: Your earnings after all deductions have been made, including income tax, National Insurance, pension contributions and student loan repayments. The amount that arrives in your bank account.

P

P11D: A form employers submit to HMRC each year listing taxable benefits in kind provided to employees, such as company cars or private health insurance. Employees use P11D information to check if their tax code needs adjusting.
P45: A form provided by your employer when you leave a job. It shows your pay and tax paid for the tax year to date. You give Part 2 and 3 to your new employer so they can apply the correct tax code.
P60: An annual certificate provided by your employer at the end of each tax year (by 31 May) showing your total pay and deductions for that year. Needed for Self Assessment, mortgage applications and tax credit claims.
PAYE (Pay As You Earn): The system used by HMRC to collect income tax and National Insurance directly from wages and salaries through your employer. Tax is deducted each pay period rather than in a lump sum at the end of the year.
Payment on account: An advance payment towards a future Self Assessment tax bill. Applies to self-employed workers and others with tax liabilities over £1,000. Two payments are made each year: in January and July.
Personal allowance: The amount of income you can receive each tax year before paying income tax. For 2026/27, the personal allowance is £12,570. It tapers to zero for earners above £125,140.
Pension annual allowance: The maximum total pension contributions (employee plus employer) that can benefit from tax relief in a tax year. For 2026/27, the standard annual allowance is £60,000.

R

Relief at source: A method of claiming pension tax relief where contributions are made from net (post-tax) pay. The pension provider claims basic rate tax relief (20%) from HMRC and adds it to your pot. Higher and additional rate taxpayers claim the extra relief through Self Assessment.

S

Salary sacrifice: An arrangement where you agree to reduce your contractual gross salary in exchange for a non-cash benefit, most commonly a pension contribution. Reduces both income tax and National Insurance because the calculation is applied to the lower post-sacrifice salary.
Self Assessment: The system used by HMRC for taxpayers to declare their income and calculate their own tax bill. Required for the self-employed, company directors, those with income above £100,000, and anyone with complex tax affairs.
State Pension: A regular payment from the UK Government made to people who have reached State Pension age and have sufficient National Insurance contribution years. The full new State Pension for 2026/27 is £11,502.40 per year.
Student loan repayment threshold: The income level above which student loan repayments are deducted from pay. Each repayment plan has a different threshold (Plan 2: £27,295; Plan 5: £25,000; etc.). Repayments are 9% of income above the threshold.

T

Tax code: A code used by your employer to calculate how much income tax to deduct from your pay. The standard code for 2026/27 is 1257L, representing the £12,570 personal allowance. An "S" prefix indicates Scottish rates; a "K" prefix indicates an income adjustment that increases your tax liability.
Tax year: The UK tax year runs from 6 April to 5 April the following year. The 2026/27 tax year runs from 6 April 2026 to 5 April 2027. Unusually among major countries, the UK's tax year does not follow the calendar year.
Taxable income: The portion of your income on which income tax is calculated. Broadly, your gross income minus your personal allowance, pension contributions, and other allowable deductions.
Trading allowance: A tax-free allowance of £1,000 for individuals with self-employment or casual income. If your self-employed turnover is below £1,000, you do not need to report it to HMRC.

U

Upper earnings limit (UEL): The earnings threshold above which the employee National Insurance rate drops from 8% to 2%. For 2026/27, the UEL is £50,270.