UK Tax Glossary
✓ Tax Terms Explained for 2026/27Additional Rate Tax
The highest rate of UK Income Tax. For England, Wales, and Northern Ireland, it is 45% on income above £125,140. In Scotland, the equivalent is the Top Rate of 48% on income above £125,140.
Associated Companies
Companies under shared control. Under UK corporation tax rules, having associated companies divides your tax bracket limits (e.g. £50,000 small profits threshold), potentially exposing you to higher corporation tax rates sooner.
Benefit in Kind (BIK)
Non-cash perks provided by an employer to an employee (e.g. company cars, private health insurance). These benefits have a taxable value calculated based on HMRC formulas, and tax is typically collected through your tax code.
Capital Gains Tax (CGT)
A tax on the profit (gain) when you sell or dispose of an asset that has increased in value (e.g. shares or buy-to-let property). An annual tax-free allowance (£3,000 for 2026/27) applies before tax is due.
Corporation Tax
Tax paid by UK limited companies on their taxable profits. The rate is 19% for profits under £50,000, 25% for profits over £250,000, and a tapered marginal rate in between.
Dividend Tax
Tax paid on dividend distributions from limited companies. The first £500 is tax-free under the Dividend Allowance. Higher amounts are taxed based on your income tax band (Basic: 8.75%, Higher: 33.75%, Additional: 39.35%).
Gross Salary
Your total annual earnings before any deductions such as Income Tax, National Insurance Contributions, pension schemes, or student loans are taken out.
Income Tax
A tax levied on personal income. Key sources of taxable income include employment salary, profits from self-employment, pensions, and interest.
Inheritance Tax (IHT)
A tax on the estate (property, money, and possessions) of someone who has died. Standard tax rate is 40% on the portion above the Nil Rate Band (£325,000) and Residence Nil Rate Band (up to £175,000).
IR35 (Off-Payroll Working)
UK tax legislation designed to identify contractors who are operating as "disguised employees" to pay less tax. Contracts deemed "inside IR35" must pay tax and NI equivalent to employment.
Individual Savings Account (ISA)
A tax-free wrapper for savings or investments in the UK. Up to £20,000 can be saved annually, with all interest, dividends, and capital gains entirely exempt from taxation.
Marginal Tax Rate
The tax rate applied to the next pound (£1) of income you earn. E.g., earnings between £100,000 and £125,140 have an effective marginal tax rate of 60% due to the tapering of the Personal Allowance.
National Insurance (NI)
A tax paid by employees, employers, and the self-employed. It funds state benefits, including the State Pension and NHS. The standard employee Class 1 rate for 2026/27 is 8% on earnings between £12,570 and £50,270.
Net Take-Home Pay
The amount of cash you actually receive in your bank account after all deductions (such as taxes, pensions, and student loans) are subtracted from your gross pay.
Personal Allowance
The amount of income you can earn each tax year before you start paying Income Tax. For 2026/27, the standard personal allowance is £12,570.
PAYE (Pay As You Earn)
The system HMRC uses to collect Income Tax and National Insurance directly from employment wages. Tax is deducted by employers automatically before paying wages.
Salary Sacrifice
An agreement to give up part of your gross salary in exchange for non-cash benefits (typically pension contributions or electric car schemes). This reduces taxable income, saving both Income Tax and NI.
Stamp Duty Land Tax (SDLT)
A lump-sum tax paid when buying property or land over a certain price threshold in England and Northern Ireland. (LBTT applies in Scotland; LTT in Wales).
Value Added Tax (VAT)
A consumption tax added to most goods and services in the UK. The standard rate is 20%, reduced rate is 5%, and zero-rated items are 0%. Companies must register if taxable turnover exceeds £90,000.
About This Calculator
This calculator uses the latest HMRC rates for the 2026/27 tax year. For illustrative purposes only — always consult a qualified tax adviser for formal advice.