Current PAYE and NIC Rates and Thresholds

If you employ staff, you need to understand the current PAYE (Pay As You Earn) and National Insurance rates and thresholds to run payroll correctly. This article sets out all the key figures for the 2025/26 tax year, including tax rates for England, Scotland and Wales, National Insurance...

Personal Allowance and PAYE Tax Rates

The Personal Allowance is the amount an employee can earn before they start paying Income Tax. For 2025/26, the standard Personal Allowance is:

£242 per week
£1,048 per month
£12,570 per year

Income Tax rates differ depending on where your employee lives.

England and Northern Ireland

Basic rate: 20% on annual earnings above the Personal Allowance up to £37,700
Higher rate: 40% on earnings from £37,701 to £125,140
Additional rate: 45% on earnings above £125,140

Scotland

Scotland operates six different tax bands above the Personal Allowance:

Starter rate: 19% on earnings up to £2,827
Basic rate: 20% on earnings from £2,828 to £14,921
Intermediate rate: 21% on earnings from £14,922 to £31,092
Higher rate: 42% on earnings from £31,093 to £62,430
Advanced rate: 45% on earnings from £62,431 to £125,140
Top rate: 48% on earnings above £125,140

Wales

Wales uses the same tax bands as England and Northern Ireland:

Basic rate: 20% on annual earnings above the Personal Allowance up to £37,700
Higher rate: 40% on earnings from £37,701 to £125,140
Additional rate: 45% on earnings above £125,140

Emergency Tax Codes

If you need to use an emergency tax code from 6 April 2025, the codes are:

1257L W1
1257L M1
1257L X

These are used when you don't have full information about an employee's tax position, such as when they start a new job without a P45.

National Insurance Thresholds

National Insurance (NI) is paid by both employees and employers on earnings above certain thresholds. For 2025/26, the key thresholds are:

Lower earnings limit: £125 per week / £542 per month / £6,500 per year

This is the minimum level at which National Insurance contributions count towards state benefits, even though no contribution is actually paid at this level.

Primary threshold (when employees start paying NI): £242 per week / £1,048 per month / £12,570 per year

Secondary threshold (when employers start paying NI): £96 per week / £417 per month / £5,000 per year

Upper earnings limit: £967 per week / £4,189 per month / £50,270 per year

Above this limit, employees pay a reduced NI rate.

Freeport and Investment Zone upper secondary threshold: £481 per week / £2,083 per month / £25,000 per year

Upper secondary threshold for under 21s, apprentices under 25, and veterans: £967 per week / £4,189 per month / £50,270 per year

Employee National Insurance Rates

Employees pay different rates of National Insurance depending on their earnings and circumstances. For most employees (category letter A), the rates are:

0% on earnings between the lower earnings limit (£125 per week) and the primary threshold (£242 per week)
8% on earnings between the primary threshold (£242 per week) and the upper earnings limit (£967 per week)
2% on all earnings above the upper earnings limit (£967 per week)

Different rates apply for specific categories, such as:

Category B: 1.85% between primary threshold and upper earnings limit (reduced rate for married women and widows with a certificate)
Category C: nil rate (employees over State Pension age)
Category H: 8% rate for apprentices under 25
Category M: 8% rate for employees under 21
Category V: 8% rate for veterans

Employer National Insurance Rates

From 6 April 2025, employers pay National Insurance at 15% on most employees' earnings above the secondary threshold of £5,000 per year.

The 15% rate applies to category letters A, B, C, and J for all earnings above the secondary threshold.

Reduced or Zero Employer Rates

Employers pay reduced or zero rates in specific situations:

Apprentices under 25 (category H): 0% up to £50,270 per year, then 15%
Employees under 21 (category M): 0% up to £50,270 per year, then 15%
Veterans (category V): 0% up to £50,270 per year, then 15%
Freeport employees (category F): 0% up to £25,000 per year, then 15%
Investment Zone employees (categories D, E, K, N): 0% up to the relevant upper threshold, then 15%

State pensioners (category C) still attract employer National Insurance at 15%, even though the employee pays nothing.

How Payroll Software Calculates Deductions

Your payroll software automatically calculates how much Income Tax and National Insurance to deduct based on:

Each employee's tax code
Their National Insurance category letter
Their gross pay for the period

You must use HMRC-recognised payroll software to report payments and deductions in real time through Real Time Information (RTI). The software will calculate the correct deductions and generate the reports you need to send to HMRC.

Sources

Rates and thresholds for employers 2025 to 2026

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.