Guide
Marginal vs effective tax rate
Two numbers, both correct, answering completely different questions. Every decision uses the second one; almost every calculator shows only the first.
Your effective rate is total tax divided by total pay — a summary of the past. Your marginal rate is what happens to the next £100 — a prediction about the future. Only the second one is decision-relevant, and it is almost always the higher of the two.
| Salary | Effective rate | Marginal rate | Gap |
|---|---|---|---|
| £20,000 | 10.4% | 28% | 18 points |
| £30,000 | 16.3% | 28% | 12 points |
| £45,000 | 20.2% | 28% | 8 points |
| £55,000 | 22.8% | 42% | 19 points |
| £80,000 | 28.8% | 42% | 13 points |
| £100,000 | 31.4% | 62% | 31 points |
| £110,000 | 34.2% | 62% | 28 points |
| £125,140 | 37.6% | 47% | 9 points |
| £150,000 | 39.1% | 47% | 8 points |
The gap is widest exactly where the decisions are hardest — around £100,000, where the effective rate is still under 30% and the marginal rate is 62%.
Why the difference exists
Because tax is banded. Your first £12,570 is untaxed no matter how much you earn; the next slice is taxed at 20%, and so on. Your effective rate is the weighted average of all those slices, so it is always dragged down by the cheap ones at the bottom. Your marginal rate is only about the top slice.
This is also why "I'll be pushed into a higher tax bracket" is never a reason to refuse a rise in the UK. Crossing a threshold changes the rate on the pounds above it, not on the pounds below. More gross is always more net — the exception being benefit cliffs, which are a different mechanism and are covered in the £100,000 trap.
Which one to use
- Is this rise worth it? Marginal. A £3,000 rise at £55,000 is worth £1,740.
- Should I put this in the pension? Marginal — relief is given at your marginal rate.
- Is this overtime worth doing? Marginal.
- Can I afford this mortgage? Effective, roughly — you are asking about total take-home.
- How heavily am I taxed compared with other countries? Neither, really. Use the wedge, which is what international comparisons use.
A quick way to sanity-check either number
Your effective rate should always be lower than your marginal rate, in every UK regime and at every income, because the marginal rate applies to your top pounds while the effective rate averages them with all the ones below. If a calculator ever shows the two the other way round, one of them is wrong. The gap between them widens wherever a withdrawal is operating and narrows where the system is flat.
Why the confusion is so persistent
Both numbers are called "your tax rate", and everyday language has no word to separate them. Worse, the one people encounter is the effective rate — it is what a payslip implies and what a take-home calculator reports — while the one that governs every choice is the marginal rate, which appears nowhere unless a tool goes looking for it. So the intuition most people carry is built entirely from the less useful of the two, and it systematically understates what a rise, a bonus or an hour of overtime is taxed at.
The gap is widest exactly where decisions are largest: in the allowance taper above £100,000 the effective rate is around a third and the marginal rate is 60%, which is a factor of nearly two between the number people have in mind and the number that applies.
Where the two rates diverge most, and why
The gap between the effective and the marginal rate is not constant, and it is not simply "bigger when you earn more". It is created by the shape of the system: a fixed personal allowance that is worth proportionally more the less you earn, bands that apply only to the pounds above them, and withdrawals that operate over narrow stretches of income. At the bottom of the scale the effective rate is far below the marginal one because the allowance is doing most of the work. In the middle they converge. In the taper band above £100,000 they diverge violently again, because a 60% marginal rate is being averaged against everything below it.
That is why the two numbers answer different questions and cannot substitute for each other. The effective rate answers "how much of my pay went in tax" and is the right number for a budget. The marginal rate answers "what is the next pound worth" and is the right number for a decision. Using the effective rate to price a rise understates the tax on it, sometimes by more than twenty points.
Three decisions that turn on the marginal rate alone
A pay rise. What you keep from a rise is one minus the marginal rate, not one minus the effective rate. In the taper band a £5,000 rise leaves about £2,000 — and with a student loan on top, closer to £1,400.
A pension contribution. The relief is given at the marginal rate, so the cost in take-home of putting £1,000 into a pension is £1,000 less your marginal rate. Inside the taper that is £400; on the basic rate it is £720. The pot receives the same £1,000 either way, which is why the same contribution is a very different deal at different salaries.
Overtime or a second shift. Paid at the marginal rate, always. A shift worth £200 gross is worth £144 at 28% and £76 at 62%, and neither figure is visible in an effective rate.
Checking this against your own payslip
Everything above is arithmetic on published parameters, which means it can be checked rather than trusted — and the check is worth doing, because the most common reason a figure here differs from your payslip is not an error on either side. Four things account for nearly all of it.
A tax code that is not the standard one changes your allowance, and codes carrying an adjustment from an earlier year are common. A benefit in kind — a company car, private medical cover — is taxed through the code and does not appear as pay. A workplace pension deducted before tax reduces taxable pay, so your gross and your taxable figure are not the same number. And National Insurance is charged per pay period rather than annually, which is why a month containing a bonus takes proportionally more than the annual figures here imply, and why the year-end total still reconciles.
If none of those explains the gap, it may be an error on this side, and that is worth an email to corrections@taxwedge.com. Corrections are published with a date at /changes/ whether or not anyone else would have noticed.
Questions people actually ask
What is my effective tax rate?
Total income tax and National Insurance divided by gross pay. At £50,000 in England & Wales it is 21.0%; at £100,000 it is 31.4%. Every salary page on this site shows both rates.
Will a pay rise put me in a higher tax bracket and leave me worse off?
Not from income tax. Only the income above the threshold is taxed at the higher rate, so more gross always means more net. The genuine exceptions are benefit cliffs — free childcare in England ends abruptly at £100,000 rather than tapering — and those are about benefits, not tax brackets.