Income Tax and National Insurance - How Does It Work?

Updated for the 2026/27 tax year (6 April 2026 to 5 April 2027).

Income tax and National Insurance are taxes that most working people pay. How much you pay depends on how much you earn and where your income comes from.

If you are over State Pension age, you stop paying National Insurance, but you may still pay income tax depending on your income.

Income Tax

Most people pay income tax through PAYE. You are given a tax code that tells your employer or pension provider how much to deduct. Your tax code can also take into account taxable state benefits such as the State Pension.

If you are self-employed and earn more than £1,000 a year, or have other untaxed income, you will need to fill in a Self Assessment tax return to work out how much income tax and National Insurance to pay.

Income tax works in bands. Your whole income is not taxed at the same rate: different portions are taxed at 20%, 40% and 45%.

Income tax bands for 2026/27 (England, Wales and Northern Ireland)

• Personal allowance: the first £12,570 is tax-free. This allowance is frozen until 2031.
• Basic rate (20%): £12,571 to £50,270
• Higher rate (40%): £50,271 to £125,140
• Additional rate (45%): over £125,140

If you earn over £100,000, your personal allowance goes down by £1 for every £2 over that amount, so it disappears completely at £125,140. Scotland has its own income tax bands and rates.

National Insurance

National Insurance is paid by workers under State Pension age and by their employers. It builds your entitlement to the State Pension and some benefits. Everyone gets a National Insurance number that identifies them for tax.

Employees (Class 1) in 2026/27

• Earnings up to £12,570 a year: no National Insurance
• Earnings between £12,570 and £50,270: 8%
• Earnings above £50,270: 2%

Employers pay 15% on employees’ earnings above £5,000 a year. This comes from your employer, not your wages.

Self-employed in 2026/27

• Class 4: 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270.
• Class 2: no longer compulsory. If your profits are below the small profits threshold, you can choose to pay voluntary Class 2 contributions of £3.65 a week to protect your State Pension.

Voluntary contributions

You can also pay voluntary Class 3 National Insurance, £18.40 a week in 2026/27, to fill gaps in your record. Gaps can happen if you had low earnings, were unemployed and not claiming benefits, or lived or worked abroad. Gaps may mean you don’t get the full State Pension.

You can check your National Insurance record here.

Rates change each tax year. Check gov.uk for the latest figures.