Short answer:
Because parts of the UK tax and benefits system are withdrawn as your income rises, creating periods where extra earnings are partly or fully cancelled out.
This is real.
It’s not a mistake in your payslip.
What’s actually happening
When you earn more, three things can happen at the same time:
- You pay more tax
- You pay more National Insurance
- You lose access to certain benefits or allowances
Each of these is calculated separately.
Together, they can create a situation where a pay rise produces little or no increase in take-home pay.
In some narrow income ranges, take-home pay can even fall.
Why this feels wrong
Most people assume income works like a straight line:
More work → more money
But the UK system is not linear.
It is made up of overlapping thresholds, each added at different times for different reasons.
The result is a step-based system, not a smooth one.
That’s why two people earning slightly different amounts can take home almost the same pay.
The main mechanisms that cause this
1. Income tax bands
As your income crosses certain thresholds, more of it is taxed at a higher rate.
That part is widely understood.
2. National Insurance thresholds
National Insurance is calculated separately from income tax and has its own bands and rates.
This adds another layer of withdrawal as earnings rise.
3. Benefit and allowance withdrawal
Some benefits and allowances are reduced or removed as income increases, including:
- Child Benefit
- Universal Credit
- Tax-free allowances in specific ranges
These withdrawals act like extra tax, even though they are not labelled as such.
The hidden effect: high marginal rates
The key concept here is the marginal rate — how much of each extra pound you keep.
In some income ranges, the combined effect of tax, National Insurance, and benefit withdrawal means you may keep only a small fraction of additional earnings.
This is why people sometimes say:
“There’s no point doing the extra hours.”
They are reacting to the marginal rate, not the headline salary.
Why the system is built this way
The system wasn’t designed as a single structure.
It grew in layers:
- Taxes to raise revenue
- Benefits to support lower incomes
- Tapering rules to control costs
Each part made sense on its own.
The complexity comes from interaction, not intent.
What this means in practice
Working more almost always increases gross income.
It does not always meaningfully increase net income.
Whether extra work is worth it depends on:
- Where your income sits relative to thresholds
- Which benefits or allowances apply to you
- How much flexibility you have over hours or timing
This is why two people can make very different decisions with the same pay offer.
One simple next step
If you’re considering extra hours, overtime, or a pay rise:
Check your effective marginal rate, not just the headline salary.
That tells you how much of the extra money you will actually keep.
The system is not punishing effort.
It is balancing multiple goals at once — imperfectly.
Understanding that makes decisions clearer, even if the outcome stays the same.