TL;DR
HMRC research published 26 June 2026 shows that Generation Z workers -- those born between 1997 and 2012 -- wish they had been taught basic tax concepts earlier in life. The research, covering 2,000 UK adults aged 18 to 27, found that 74 percent did not understand how income tax bands work when they started their first job, and 61 percent were unaware of the Personal Allowance until they received their first payslip.
Last reviewed: 26 June 2026 | Sources: FCA, GOV.UK, HMRC
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Key Facts Gen Z surveyed: 2,000 adults aged 18-27Unaware of income tax bands: 74% at start of first jobUnaware of Personal Allowance: 61%Personal Allowance 2026/27: £12,570 |
What HMRC's research found
HMRC published research on 26 June 2026 examining financial literacy among Generation Z workers aged 18 to 27. The survey of 2,000 participants found significant gaps in basic tax knowledge at the point of entering employment. Seventy-four percent did not understand how income tax bands work when they started their first job, meaning most Gen Z workers did not know that only earnings above the Personal Allowance are taxed, or that different portions of income are taxed at different rates.
Sixty-one percent were unaware of the Personal Allowance -- the amount of income a UK taxpayer can earn before paying any income tax -- until they received their first payslip. The Personal Allowance for 2026/27 is £12,570, frozen at this level since April 2021 under a policy that has gradually brought more lower-income workers into the tax net as wages rise.
UK income tax basics: what Gen Z workers need to know
UK income tax operates on a banded system. The Personal Allowance of £12,570 means the first £12,570 of income is tax-free. Income between £12,571 and £50,270 is taxed at the basic rate of 20 percent. Income between £50,271 and £125,140 is taxed at the higher rate of 40 percent. Income above £125,140 is taxed at the additional rate of 45 percent. The Personal Allowance is tapered for incomes above £100,000, reducing by £1 for every £2 earned above this threshold, meaning the allowance is entirely withdrawn at £125,140.
Most employees pay tax through PAYE (Pay As You Earn), where the employer deducts tax and National Insurance from gross pay before paying the employee. The tax code on a payslip (commonly 1257L for most basic rate taxpayers in 2026/27) tells the employer how much Personal Allowance to apply. Workers who do not understand their tax code may not notice if they are on an emergency tax code that deducts more tax than required.
National Insurance: the other deduction Gen Z often misses
HMRC's research also found that National Insurance contributions were poorly understood. National Insurance is a separate deduction from income tax, contributing to entitlement to state benefits including the State Pension, Statutory Sick Pay and Maternity Pay. In 2026/27, employees pay Class 1 NICs at 8 percent on earnings between £12,570 and £50,270, and 2 percent on earnings above £50,270. Employers pay Class 1 NICs at 13.8 percent on employee earnings above the Secondary Threshold.
How to check your tax is correct
HMRC's Personal Tax Account at gov.uk allows any UK taxpayer to check their tax code, view their income and tax paid, and claim refunds if they have overpaid. HMRC recommends all new employees check their tax code at the start of employment and after any change in employment status. Workers on an emergency tax code (typically marked W1, M1 or X) should contact HMRC or their employer to have the correct code applied, as emergency codes do not account for the full Personal Allowance.
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Disclaimer This article is for information only and does not constitute financial or legal advice. Kael Tripton Ltd is an independent editorial publisher and is not regulated by the FCA. |
Frequently asked questions
What is the Personal Allowance for 2026/27?
The Personal Allowance for 2026/27 is £12,570. This is the amount of income you can earn before paying income tax. It has been frozen at this level since April 2021. If your income exceeds £100,000, the allowance is reduced by £1 for every £2 above £100,000, until it is fully withdrawn at £125,140.
How does PAYE work?
Pay As You Earn means your employer deducts income tax and National Insurance from your gross salary before paying you. The tax code on your payslip tells your employer how much Personal Allowance to apply. Most employees with one job and straightforward tax affairs will be on code 1257L in 2026/27, reflecting the standard Personal Allowance.
What is an emergency tax code?
An emergency tax code (W1, M1 or X suffix) is applied when HMRC does not have enough information about your income to issue the correct code. Emergency codes typically do not give the full benefit of the Personal Allowance, meaning you may pay more tax than you should. Check your tax code via your Personal Tax Account at gov.uk and contact HMRC if you are on an emergency code.
Do I need to complete a Self Assessment tax return?
Most employees with straightforward tax affairs who pay tax only through PAYE do not need to complete a Self Assessment return. You may need to file if you are self-employed, have income above £100,000, receive significant investment or rental income, or have taxable income from other sources. HMRC will write to you if it requires a return.
Where can I check if I have paid the right amount of tax?
Log in to your Personal Tax Account at gov.uk using your Government Gateway credentials. You can view your income, tax paid, tax code, and any refunds due. HMRC also reconciles PAYE tax at the end of each tax year and will send a P800 letter if you have overpaid or underpaid.
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Sources HMRC: Income Tax Rates and Allowances |
