Glossary · UK
What is Effective Tax Rate?
Total tax paid expressed as a percentage of total gross income — your real average rate.
Full Definition
The effective tax rate (ETR) is total UK Income Tax (and often NI and student loan combined) divided by gross income. It is always lower than your marginal rate because the first £12,570 of income in 2026/27 is tax-free under the Personal Allowance, and the next £37,700 is taxed at only 20%. For example, an employee on £50,000 pays roughly £7,486 income tax and £2,994 employee NI in 2026/27 — an ETR of about 21%, even though the marginal rate at the top of that salary is 42%. ETR is the right figure to use when comparing offers, regions (Scotland vs rUK) or when describing real take-home pay.
How Effective Tax Rate is calculated
Effective tax rate = Total tax and NI paid / Gross income x 100%- Total tax and NI paid
- Income Tax plus National Insurance (and student loan, if counted) over the year.
- Gross income
- Total income before any deductions.
Worked example: On GBP 35,000 in England the deductions are GBP 4,486 tax + GBP 1,794.40 NI = GBP 6,280.40, so the effective rate is 6,280.40 / 35,000 = 17.9%, well below the 20% marginal band.