Marginal Tax Rate Calculator 2026/27

The marginal tax rate is the rate of tax you pay on your next pound of income — not on all your income. Because the UK uses progressive tax bands, your marginal rate changes as income rises. For example, a contractor earning £55,000 PAYE in 2026/27 pays 28% on income between £12,570 and £50,270 (20% income tax + 8% NI), and 42% on income above £50,270 (40% income tax + 2% NI). Their marginal rate is 42%, but their effective rate is around 26% because most income was taxed at lower rates.

The effective tax rate is the average — total income tax and NI divided by gross income. It is always lower than the marginal rate because lower-rate bands apply to most of your income. A contractor earning £70,000 PAYE in 2026/27 pays approximately £18,842 in income tax and NI, giving an effective rate of 26.9%. Their marginal rate on the last pound of income is 42%, but the effective rate reflects the full picture across all bands.

Between £100,000 and £125,140 the personal allowance is withdrawn at £1 for every £2 earned above £100,000. This withdrawal acts like an extra 20% tax: each £2 of income loses £1 of personal allowance that was sheltering income from 40% tax, costing an additional £0.40 in tax. Combined with the 40% higher-rate tax on the new income: 40% + 20% = 60%. Including employee NI (2%) the total reaches 62%. At £125,140 the personal allowance reaches zero and the marginal rate drops back to 47% (45% + 2% NI).

Scottish taxpayers pay Scottish Income Tax rates on earned income. Scotland has six bands in 2026/27: starter (19%), basic (20%), intermediate (21%), higher (42%), advanced (45%), and top (48%). The most significant difference for contractors is that Scotland's higher rate (42%) starts at gross income of £43,662 — compared to £50,270 in England. A Scottish contractor earning £45,000 pays 50% marginal rate (42% IT + 8% NI) on income above £43,662, while an English contractor at the same level is still in the 28% basic-rate zone. National Insurance, student loan repayments, and corporation tax are UK-wide.

Legally no — student loan repayments are debt repayments collected through HMRC but are not classified as taxation. However, they function identically to a tax for planning purposes: they are calculated as a percentage of income above a threshold and deducted from pay. A Plan 2 borrower earning £40,000 pays 9% on income above £28,470 — roughly £1,038 per year — adding 9 percentage points to their marginal rate. On top of 20% income tax and 8% NI, their marginal rate becomes 37%. For pension contribution and salary sacrifice planning, student loan repayments should be treated as part of your effective marginal rate.

The highest combined marginal rate is approximately 71% — reached when someone is in the 60% personal allowance trap zone (£100,000–£125,140) while also repaying multiple student loans. For example: 40% income tax + 20% PA taper effect + 2% NI + 9% Plan 2 repayment = 71%. Most contractors face a peak of 62% in the trap zone (40% IT + 20% PA taper + 2% NI) without student loans, or 47% above £125,140 (45% + 2% NI). In Scotland the top rate is 50% (48% + 2% NI) on income above £125,140.

Pension contributions reduce your adjusted net income, which can move you into a lower marginal rate band. The most valuable case is the 60% trap: a contractor earning £110,000 who makes a £10,000 pension contribution reduces adjusted net income to £100,000, eliminating the personal allowance taper entirely. Their marginal rate drops from 62% to 42%. At 62% effective marginal relief, every £1 contributed to a pension costs just 38p in net take-home — 62p comes from tax savings. A pension contribution can also eliminate the High Income Child Benefit Charge if it brings income below £60,000.

Your effective rate is the average — total tax divided by total income. Your marginal rate is the rate on your next pound. They differ because the UK tax system is progressive. A contractor earning £80,000 PAYE in 2026/27 has an effective rate of approximately 29.5% (total income tax + NI divided by income), but a marginal rate of 42% (the rate applied to income from £50,270 to £80,000). The marginal rate is what matters for decisions like "should I take on extra work?", "how much does a pension contribution save me?", or "is my overtime worth it?" The effective rate matters more for comparing overall tax burdens across structures or years.

The 62% trap refers to the combined marginal rate between £100,000 and £125,140 for PAYE workers: 40% income tax + 20% from the personal allowance taper + 2% employee NI = 62%. It is sometimes called the "60% trap" when NI is excluded. It affects contractors earning in this band — whether PAYE employed, inside IR35 (where income tax and NI apply to deemed employment income), or Sole Traders (where Class 4 NI upper rate is also 2%, giving the same combined total). The trap is eliminated at £125,140, where the personal allowance reaches zero and the marginal rate returns to 47% (45% + 2% NI). A pension contribution can eliminate it for anyone still below £125,140.

The High Income Child Benefit Charge adds an effective marginal rate of approximately 0.5–1% per £1 of income between £60,000 and £80,000, for those who claim child benefit. For one child (annual benefit approximately £1,355 in 2026/27), the HICBC taper adds around 0.68% to the marginal rate across the £20,000 taper range. For two children (benefit approximately £2,251), it adds around 1.13%. This stacks on top of income tax and NI — a contractor earning £70,000 with two children faces a combined marginal rate of approximately 43.1% (42% IT+NI + 1.1% HICBC). Use the HICBC calculator to see your exact charge and whether a pension contribution would eliminate it.