Progressive taxation is a system in which the tax rate rises as income increases, so higher earners pay a larger percentage of their income than lower earners. It works through brackets: each slice of income is taxed at its own rate, and only the money falling inside a higher band is taxed at that higher rate.
Most countries tax personal and business-owner income this way. The United Kingdom moves from a personal allowance through basic, higher and additional rates. The United States uses seven federal brackets. Germany applies a smoothly rising formula up to a top rate, and Italy layers national IRPEF brackets on regional add-ons. This structure is the opposite of a flat-rate scheme, where one percentage applies to all qualifying income.
A common misunderstanding is that crossing into a higher bracket taxes your whole income more. It does not. Example: if income up to 12,570 pounds is tax-free and the next band is 20 percent, someone earning 30,000 pounds pays nothing on the first slice and 20 percent only on the amount above it, giving an effective rate well below 20 percent.
This matters for a sole trader or anyone self-employed, whose profits are taxed at these personal rates. Compare bracket structures with our tax comparison tool.