UK Tax Glossary

Your total pay before anything is taken off. This is the number on your contract or job offer. Before tax, before National Insurance, before pension. The starting point.

This is the number HMRC really cares about. It is your total taxable income minus certain deductions like pension contributions and Gift Aid donations. It decides whether you lose your Personal Allowance, pay the High Income Child Benefit Charge, or lose Tax-Free Childcare.

The amount you can earn each year without paying any income tax on it. For 2025/26 it is £12,570. But here is the catch: once your Adjusted Net Income goes above £100,000, you start losing £1 of allowance for every £2 you earn above that. By £125,140, it is completely gone.

The reason this tool exists. When your income crosses £100,000, you do not just pay 40% tax on the extra. You also lose your Personal Allowance, which means HMRC effectively taxes that slice of income at 60%. For every extra £1 you earn between £100,000 and £125,140, you keep only about 40p. Some people earning £125,000 take home less than someone earning £100,000.

The tax you pay on the next pound you earn. Not your average rate, your edge rate. Between £100,000 and £125,140, your marginal rate can hit 60% because of the Personal Allowance taper. Knowing this number is the key to working out whether a pay rise actually makes you better off.

Tax you pay on your earnings and other income. In England, Wales and Northern Ireland there are three main rates: 20% (basic), 40% (higher) and 45% (additional). Scotland has its own bands with slightly different rates and thresholds.

A second tax on your earnings that funds the State Pension and some benefits. You pay it on top of income tax. For employees, the rate is 8% on earnings between £12,570 and £50,270, then 2% above that. Your employer also pays NI on your salary.

The system your employer uses to collect income tax and National Insurance from your salary before you receive it. Most employees never see the money. It just gets deducted automatically each month. If your tax situation is straightforward, PAYE handles everything. If not, you may need to file a Self Assessment.

A code your employer uses to work out how much tax to deduct from your pay. The most common is 1257L, which means you have the full £12,570 Personal Allowance. If HMRC adjusts your allowance (for example, because of benefits in kind), your tax code changes. You can find it on your payslip.

A tax return you file with HMRC if you need to report income or tax charges that PAYE does not fully deal with. You may need one if you are self-employed, have rental or foreign income, have significant untaxed savings, investment or dividend income, or need to pay the High Income Child Benefit Charge and do not pay it through PAYE. You can also use it to claim some tax reliefs, although in some cases you may be able to claim directly from HMRC without filing a return.

The 12-month period HMRC uses for tax calculations. It runs from 6 April to 5 April the following year. So "2025/26" means 6 April 2025 to 5 April 2026. All the thresholds and allowances in this tool are set per tax year.

Extra cash payments on top of your salary, like an annual bonus or sales commission. They are taxed through PAYE just like your salary, and they count towards your Adjusted Net Income. A large bonus can push you over the £100,000 cliff.

Shares your employer gives you as part of your pay, but you cannot sell them straight away. When they "vest" (become yours), their value counts as taxable employment income, even if you do not sell them. This increases your ANI and can push you into the tax trap without you realising, because you have not actually received any cash.

Non-cash perks from your employer that HMRC treats as income. Things like a company car, private medical insurance, or a gym membership. Their value is reported on a form called the P11D and added to your taxable income. Some benefits are taxed through payroll ("payrolled benefits"), others through your tax code.

A form your employer submits to HMRC listing the benefits in kind you received during the tax year. You should get a copy. The total value on your P11D gets added to your taxable income, which can affect your ANI.

Benefits in kind where the tax is collected through your pay each month, rather than through your tax code at the end of the year. You will see the amount on your payslip. The benefit still counts as income, but the tax is handled in real time.

An arrangement where you agree to give up part of your gross salary, and your employer puts that money into your pension instead. Because the money never reaches you as salary, it can reduce your income tax, National Insurance and Adjusted Net Income.

The way most personal pensions and SIPPs handle tax relief. You pay in from your net (after-tax) pay. Your pension provider then claims 20% basic rate tax relief from HMRC and adds it to your pot. If you are a higher-rate taxpayer, you claim the extra relief through Self Assessment.

A personal pension you manage yourself, choosing where to invest the money. You contribute from your net pay, and the provider claims basic rate tax relief. SIPPs give you more control than a workplace pension but you are responsible for the investment decisions.

A pension set up by your employer. Under auto-enrolment, most employers must offer one. The minimum contribution is 8% of qualifying earnings (5% from you, 3% from your employer). It might use salary sacrifice or Relief at Source, depending on how your employer has set it up.

A type of workplace pension where your contribution is taken from your salary before income tax is calculated. You get tax relief automatically through payroll. This is different from salary sacrifice. With net pay, it is still your contribution taken from pay. With salary sacrifice, your contractual salary is reduced and your employer pays the pension contribution.

The maximum amount you can put into pensions each year and still get tax relief. For 2025/26 it is £60,000 (or 100% of your earnings, whichever is lower). If you go over this, you pay a tax charge on the excess.

Money your employer pays into your pension on your behalf. It does not count as your taxable income, but it does count towards the Annual Allowance. In a salary sacrifice arrangement, the "employer contribution" includes the salary you gave up.

Interest earned on money in bank or building society accounts. You have a Personal Savings Allowance of £500 (for higher-rate taxpayers) or £1,000 (basic rate) before you pay tax on it. Above that, it is taxed at your marginal rate and counts towards your ANI.

Payments you receive from owning shares in a company. The first £500 per year (the Dividend Allowance) is tax-free. After that, the rates are 8.75% (basic), 33.75% (higher) or 39.35% (additional). Dividends count towards your ANI.

Your rental income after allowable expenses but before mortgage interest. Since April 2020, mortgage interest is not deductible from rental profits. Instead you get a separate 20% tax credit on the interest (known as Section 24). Taxable rental income is taxed as non-savings income and counts towards your ANI.

Profit from running your own business or doing freelance work, after deducting allowable business expenses. It is taxed as non-savings income and counts towards your ANI. You report it through Self Assessment.

Money you receive from a private pension, the State Pension, or an annuity. It counts as taxable income and goes towards your ANI. The State Pension is not taxed at source, but it uses up part of your Personal Allowance.

A payment from the government for each child you are responsible for. For 2025/26 it is £26.05 per week for the first child and £17.25 for each additional child. It is not means-tested, but if the higher earner in the household has an ANI above £60,000, you start to lose it through the High Income Child Benefit Charge.

If you or your partner have Adjusted Net Income above £60,000, you may have to repay some or all of your Child Benefit through the High Income Child Benefit Charge. The charge increases as income rises, and at £80,000 or above the full amount is usually clawed back.

A government scheme where for every £8 you pay towards approved childcare, the government adds £2, up to £2,000 per child per year, or £4,000 for a disabled child. Usually, neither you nor your partner can have Adjusted Net Income over £100,000. There is also a minimum earnings test, but the exact threshold depends on your age and circumstances.

Free early education and childcare for children in England. All 3 and 4 year-olds can usually get 15 hours a week for 38 weeks a year. Eligible working parents can usually get 30 hours a week for children aged 9 months to 4 years. If you have a partner, you will usually both need to meet the work and income conditions, although some exceptions apply.

To qualify for Tax-Free Childcare and Free Childcare for Working Parents, you usually need to expect to earn at least the equivalent of 16 hours a week at the National Minimum or Living Wage over the next 3 months. The exact threshold depends on your age, and some exceptions apply.

A scheme that makes charitable donations more tax-efficient. When you donate under Gift Aid, the charity claims 25% on top from HMRC (so a £100 donation becomes £125 for the charity). As a higher-rate taxpayer, you can claim the difference between your rate and the basic rate through Self Assessment. Gift Aid donations also reduce your ANI.

How tax relief works depends on the type of pension scheme. In relief at source pensions, such as most SIPPs and personal pensions, your provider usually adds 20% basic-rate tax relief to your contribution. If you pay tax above the basic rate, you may be able to claim extra relief from HMRC. In net pay schemes, the tax relief is usually given automatically through payroll. In salary sacrifice, your employer pays the pension contribution and your taxable salary is reduced instead. If you are in the £100k taper zone, pension contributions can also help restore some or all of your Personal Allowance.

The difference between what PAYE collects during the year and what you actually owe. If you have income that PAYE does not know about (like dividends, rental income, or HICBC), you may owe extra. If you have overpaid, you get a refund. CliffGuard estimates this so you are not surprised.

The money that actually lands in your bank account after income tax, National Insurance, pension contributions, student loan repayments and any other deductions. It is your gross salary minus everything. This is the number that matters for your monthly budget.

The repayment plan for students who started their course before September 2012 in England or Wales, or who studied in Scotland or Northern Ireland. You repay 9% of everything you earn above £26,065 a year.

The repayment plan for students who started their course in England or Wales from September 2012. You repay 9% of everything you earn above £28,470 a year.

The repayment plan for Scottish borrowers. You repay 9% of everything you earn above £32,745 a year.

The repayment plan for students who started courses in England from September 2023. You repay 9% of everything you earn above £25,000 a year.

A separate loan for postgraduate Master's or Doctoral courses. You repay 6% of everything you earn above £21,000 a year.