UK Tax Rates, Thresholds and Allowances for the Self-Employed
Read our guide to the current UK tax rates and thresholds affecting sole traders, limited companies, partners and partnerships, employers, and other businesses.
Paying tax is pretty much inevitable, although the rules around being taxed can be confusing. If you’re someone who runs a business you might need to be aware of several different taxes such as Corporation Tax, income tax, VAT, and Dividend Tax.
The way you structure your business affects what types of tax it needs to pay, and even has an impact on your tax reporting requirements and deadlines.
The type and rate of taxes you pay can also change according to your status as an employee or an employer. You might even be both if you’re the owner and director of your own company and pay yourself a salary, or if you have a side-hustle on the go whilst working for an employer.
In this guide we’ll explain the different types of tax which might affect your business as well as your personal income. If you need any help with tax, or need support with another area of your business, chat to one of the team about our online accounting services, or get an instant quote online.
What tax years are covered in our guide to rates and thresholds?
This guide goes over the different taxes you and your business might pay in the 2025 to 2026 tax year (6th April 2025 to 5th April 2026) and the 2026/27 tax year (6th April 2026 to 5th April 2027).
We cover the rates and thresholds for different tax years like this so you can check what rules apply, and when. For example, you’ll need the 2025/26 rates if you’re submitting a Self Assessment tax return for the 2025 to 2026 tax year, but it’s useful to know what’s going on in the current year too!
When do tax rates change?
Tax rates and allowances are normally set before the start of a new tax year. They’ll stay at the same level until the following year, although mid-year changes do sometimes happen. The UK tax year always runs from 6th April to 5th April the following year.
Income Tax and Personal Allowance
How do income tax thresholds, rates, and allowances work?
The tax system works by splitting your income into different bands. The amount of tax you pay is worked out as a percentage (known as a tax rate) of your earnings within each tax band.
It helps to think of the income tax system as a series of buckets. Each bucket represents a tax band. You’ll pay one rate of tax on the first bucket of income. If your earnings are more than the first bucket can hold, you’ll start filling up the next one, and pay a different rate of tax on the earnings that go into it.
Income tax myth buster
Earning more money and moving up into a new tax band doesn’t mean you’ll pay the new tax rate on all your earnings. You’ll only pay the new tax rate on the part of your earnings which fall within the new tax band.
Do children pay income tax?
Minors under the age of 18 are liable to pay income tax just like any other UK taxpayer, although they won’t need to pay National Insurance until they turn 16 regardless of what they earn.
What is the tax-free Personal Allowance?
The Personal Allowance is the amount anyone can earn in a tax year before starting to pay income tax. The allowance is deducted from the total amount you earn in a year, so even if you earn more than the threshold, you’ll only pay tax on the part of your income above it.
You can only use the Personal Allowance once in a tax year, even if you’re employed and self-employed, or receive your income from a variety of sources. You won’t get a new allowance for each type of income – sorry!
For instance, you might earn wages from an employer, receive income from property, make money from business activities, or a combination of all of these. The Personal Allowance will be applied against the total amount you get from everything, not separately against each source.
You might also be able to use the tax-free trading allowance against the first £1,000 of income you make from self-employment or miscellaneous activities.
How much is the Personal Allowance in 2026/27?
The tax-free Personal Allowance normally increases slightly each year, but tax thresholds are expected to remain frozen for the forseeable future. It means the tax-free allowance for 2026 to 2027 is the same as it was for the previous tax year (2025 to 2026) at £12,570.
The tax-free Personal Allowance is
£12,570
You’ll pay income tax on any earnings which are above the £12,570 threshold. For example, if you earn £18,000 in a tax year and deduct the Personal Allowance then the taxable element of your income is £5,430.
The Personal Allowance for high earners
The tax-free Personal Allowance starts to taper if you earn more than £100,000 in a tax year. For every £2 you earn above £100,000, the Personal Allowance reduces by £1, so your personal tax allowance is zero if you earn £125,140 or more (so you might have a 0T tax code as a result).
What are the income tax rates and thresholds?
The table below shows the thresholds for each income tax band, and the tax rates which apply to each band, for the 2025/26 and 2026/27 tax years in England, Wales, and Northern Ireland. Scotland uses different tax bands and thresholds, so these are shown in the section which comes after.
Income tax in England, Wales, and Northern Ireland for 2025/26 and 2026/27
| Tax Rate | 2025/26 | 2026/27 |
| Personal Allowance: How much income you can earn before you start to pay income tax. No tax on this income. | £12,570 | £12,570 |
| Basic rate income tax: 20% tax on the proportion of income which falls into this tax bracket. | £12,571 – £50,270 20% |
£12,571 – £50,270 20% |
| Higher rate income tax: The part of your income which falls into this tax band is taxed at 40% | £50,271 – £125,140 40% |
£50,271 – £125,140 40% |
| Additional rate income tax: This is the highest rate. The income you earn above this threshold is subject to tax at 45% | Above £125,140 45% |
Above £125,140 45% |
For example
If you earn a self-employed or salaried income of £60,000 in England, Wales, or Northern Ireland during the 2026/27 tax year, you’ll pay:
- 0% tax on the first £12,570
- 20% basic rate tax on the part of your income which falls into the next tax bracket (£12,571 - £50,270)
- 40% higher rate income tax on the next chunk (£50,271 up to £60,000)
Income tax in Scotland for 2025/26 and 2026/27
This table shows the Scottish income tax band thresholds in 2025 to 2026, and 2026 to 2027, along with the percentage tax rate which applies to the income in each band.
| Tax Rate | 2025/26 Tax Band Thresholds |
2026/27 Tax Band Thresholds |
| Personal allowance | £12,570 | £12,570 |
| Starter rate | £12,571 – £15,397 19% tax |
£12,571 – £16,537 19% tax |
| Basic rate | £15,398 – £27,491 20% tax |
£16,538 – £29,526 20% tax |
| Intermediate rate | £27,492 – £43,662 21% tax |
£29,527 – £43,662 21% tax |
| Higher rate | £43,663 – £75,000 42% tax |
£43,663 – £75,000 42% tax |
| Advanced rate | £75,001 – £125,140 45% tax |
£75,001 – £125,140 45% tax |
| Top rate | Over £125,140 48% tax |
Over £125,140 48% tax |
For example
Using an example salary of £100,000, a Scottish taxpayer in 2026/27 will pay:
- 0% tax on the first £12,570
- 19% on the proportion of your income subject to the starter rate (which covers £12,571 – £16,537)
- 20% basic rate tax on the part of your income which falls into the next tax bracket (£16,538 – £29,526)
- 21% tax on the part of your salary which falls into the intermediate tax band (which is £29,527 – £43,662)
- 42% higher rate income tax on the next chunk (£43,663 – £75,000)
- 45% advanced tax on income above £75,000 up your total salary of £100,000
Property Tax
The introduction of new tax rates means property income earned by individuals will be taxed more heavily than other types of income.
The new rates will take effect in England, Wales and Northern Ireland from April 2027:
- Basic rate: 22%
- Higher rate: 42%
- Additional rate: 47%
Any profits a limited company makes from property will continue to be covered by Corporation Tax as usual; the new rates are just for individuals.
National Minimum Wage (NMW) and National Living Wage (NLW)
There are rules which state the basic minimum hourly rate an employer must pay depending on the employee’s age.
- Employees aged 21 and older must receive the National Living Wage (NLW). This is £12.71 per hour in the 2026/27 tax year
- Employees under the age of 21 must get the National Minimum Wage according to how old they are
The minimum hourly rates for National Living Wage and National Minimum Wage usually increase each tax year. Thanks to their similar sounding names, it can be very easy to confuse them, so our article explains the differences between the National Living Wage, National Minimum Wage, and the Living Wage in more detail.
How much is the National Minimum Wage?
National Minimum Wage is paid on the basis of the employee’s age, although there are different rates for apprentices. The table below shows how much National Minimum Wage is in the 2026 to 2027 tax year.
| Employee Age | 2026/27 |
| Apprentices and Under 18s | £8.00 per hour |
| 18 to 20 years old | £10.85 per hour |
How much is the National Living Wage?
The National Living Wage (NLW) in 2026 to 2027 is £12.71 per hour.
National Insurance
Who needs to pay National Insurance?
Anyone aged 16 and over, up to State Pension age, will make National Insurance Contributions on their employed or self-employed income above a certain amount. Employers also make NI Contributions (NICs) on the wages they pay their staff.
Paying the right amount of National Insurance (known as making National Insurance Contributions, or NICs) is important, because it can count towards your eligibility for some benefits and the state pension.
There are different types of National Insurance known as ‘classes’, and the class you pay depends on the source of income. For instance, employees pay Class 1 Primary National Insurance.
- Class 1 (Primary):Â Employees pay this on the wages they earn from an employer
- Class 1 (Secondary):Â Employers make these contributions towards their employees’ National Insurance
- Class 1A or 1B:Â Some employers may also need to make National Insurance contributions on the equivalent value of any benefits they provide to employees, known as Benefits in Kind, or BiKs
- Class 2:Â This isn’t mandatory, but self-employed people can pay Class 2 NI voluntarily to protect pension and benefit entitlements
- Class 3:Â These are voluntary contributions which you can make if you need to top up the amount of National Insurance you paid in a tax year
- Class 4:Â This type of National Insurance is payable by self-employed people on the profits they make
Will I pay different types of National Insurance?
You might pay more than one type (or class) of National Insurance in the same tax year. This can happen if you work for someone as an employee as well as earning other income from self-employment. It can also happen if you’re a director and take a salary from your own limited company, because you’ll pay NI as an employee and your company will pay it as an employer!
How much National Insurance will I pay?
Payment thresholds and rates vary across different types of National Insurance, so the amount of NI you pay depends on both how you earn your money and how much you get.
Our tables below show the rates and thresholds for each class of National Insurance for employers, employees, and self-employed people.
National Insurance for employees
Employees pay Class 1 (Primary) National Insurance on what they earn working for an employer. It’s worked out as a percentage of their income, and their employer deducts what they owe from their wages before paying them. The employer then uses the PAYE system to pay these deductions, known as NI contributions, to HMRC on the employee’s behalf.
Employers can only make these deductions if the employee qualifies for Class 1 National Insurance based on how much money they earn and their age. Use our free online salary and tax calculator to work out your take-home pay.
Class 1 (Primary) National Insurance thresholds and rates for employees
Employees earning less than the Lower Earnings Limit (LEL) won’t pay any National Insurance, or accrue any entitlements such as qualifying payments towards the State Pension. An employee who earns more than the LEL but less than the Primary Threshold won’t have NI deducted from their pay, but they will get NI credits so they’ll earn entitlements as if they had paid.
| 2025/26 | 2026/27 | |
| Lower Earnings Limit (LEL): No NI to pay on earnings between the limit and the Primary Threshold, but employees will earn NI ‘credits’ and accrue benefits. | £6,500 | £6,708 |
| Primary Threshold: Employees pay Class 1 National Insurance at 8% on earnings above the Primary Threshold up to (and including) the Upper Earnings Limit. | £12,570 8% |
£12,570 8% |
| Upper Earnings Limit (UEL): Earnings above the Upper Earnings Limit are subject to NI at 2% | £50,270 2% |
£50,270 2% |
National Insurance for employers
An employee’s National Insurance payment actually consists of two parts. The primary part is their own contribution which comes out of their pay, and then there’s a secondary NI contribution which their employer makes.
As an employer you’ll need to make PAYE submissions to tell HMRC about what you pay your employees, any deductions, and the contributions you make as their employer.
The National Insurance contributions you make as an employer are an additional cost to consider when you think about hiring someone, along with their wages and any pension contributions. Use our free online calculator to work out the cost of hiring someone.
If you’re brand new to all this, don’t worry! Our guides and resources for employers explain what you need to do if you’re taking on staff for the first time.
Class 1 (Secondary) National Insurance thresholds and rates for employers
Employers make Class 1 Secondary contributions if they have an employee who earns more than a certain amount. The table below shows the annual threshold at which employers must start making NI contributions, and at what rate, for the 2025/26 and 2026/27 tax years.
| 2025/26 | 2026/27 | |
| Secondary Threshold: Employers make NI contributions on salary payments above these thresholds at a rate of 15% in 2025/26 and 2026/27. | £5,000 15% |
£5,000 15% |
The National Insurance Employment Allowance for employers
Eligible employers can claim relief on the cost of their National Insurance bill using the Employment Allowance.
In 2026/27 the Employment Allowance is
£10,500
Employers must have at least 1 employee (or 2 directors) on the payroll and earning more than the £5,000 Secondary Threshold to be eligible for the Employment Allowance. The directors can’t already be claiming the allowance through another company.
Class 1A National Insurance for employers
As well as making NI contributions on the wages they pay their staff, employers must also make contributions on the equivalent value of any work benefits (known as Benefits in Kind, or BiKs) which they provide to employees.
The rate of Class 1A National Insurance is the same as Class 1 (Secondary) NI which employers pay on wages. Employers can report these benefits through payroll or by submitting a P11D form, although the option to use a P11D form won’t be available from April 2027 onwards (except to report employment related loans and accommodation).
National Insurance for self-employed people
Self-employed people pay National Insurance on eligible profits according to how much they earn in a tax year. The amount of self-employed National Insurance you owe is worked out using the information reported in either your Self Assessment or MTD Income Tax Return (depending on which one you need to use).
- Class 2 National Insurance isn’t mandatory, but you can pay the flat weekly rate to protect your State Pension and benefits entitlements
- Class 4 NI is charged as a percentage of the self-employed profits you earn above the threshold
Class 2 NI – voluntary contributions if you’re self-employed
Mandatory payments for Class 2 National Insurance were abolished from April 2024 so you don’t need to pay it, but you can choose to if your profits are below the Small Profits Threshold and you want to protect your entitlement to the State Pension or some benefits. They’re charged as a weekly rate:
- 2025/26: £3.50 per week
- 2026/27: £3.65 per week
Self-employed Class 4 National Insurance thresholds and rates
The table below shows Class 4 NI for self-employed profits in 2025 to 2026, and 2026 to 2027, and the point at which each rate kicks in.
| 2025/26 | 2026/27 | |
| You won’t pay National Insurance on self-employed profits below the Small Profits Threshold, but you can voluntarily make Class 2 contributions to fill any gaps in your NI record. | £0 – £6,844 | £0 – £7,104 |
| Small Profits Threshold (SPT): You won’t pay NI on the part of your profits which are between this and the Lower Profits Threshold (LPT), but you will build up National Insurance credits. | £6,845 | £7,105 |
| Lower Profits Limit (LPL): You’ll start paying Class 4 National Insurance on any profits above this threshold at a rate of 6% | £12,570 6% |
£12,570 6% |
| Upper Profits Limit (UPL): You’ll pay Class 4 NI at a rate of 2% on any self-employment profits above this threshold. | £50,270 2% |
£50,270 2% |
What happens to my National Insurance if I’m self-employed and employed?
Some people work for an employer as well as being self-employed during the same tax year. Unlike income tax which looks at all of your income during a tax year, National Insurance is broken down into how you earn the money, so you might pay different types of NI on each source of income.
- Depending on how much you earn, you’ll pay Class 4 NI on the profits which you make from being self-employed. You’ll usually pay this through Self Assessment.
- Your employer will deduct Class 1 (Primary) NI from your wages before they pay you. They won’t know about your self-employed National Insurance unless you tell them.
Capital Gains Tax (CGT)
What is Capital Gains Tax?
Capital Gains Tax (CGT) is payable on any profit you make after ‘disposing’ of an asset you own. Making a disposal usually means you’ve sold it, but it can also involve giving it away, swapping it for something else, or being compensated for its loss in other ways.
The amount of Capital Gains Tax you owe is based on the profit or ‘gain’ you make (the difference between the cost of acquiring it and what you received for its disposal), not on the total amount of money you receive disposing of the asset.
Capital Gains Tax annual exempt amount
The annual exempt amount (the AEA) is the total amount of gains you can make in a year before starting to pay tax on them. If your gains go over the annual amount then you’ll only pay Capital Gains Tax (CGT) on the part that’s above the threshold (and you can use the personal tax allowance at the same time). Just be aware you might also see this referred to as the Capital Gains Tax allowance.
The exemption threshold is different depending on whether the disposal was made by individuals or trustees. You’ll pay Capital Gains on anything you get above these thresholds.
| 2025/26 | 2026/27 | Individuals | £3,000 | £3,000 |
| Trustees | £1,500 | £1,500 |
How much is the rate of Capital Gains Tax?
Paying Capital Gains Tax is linked to your total income for the tax year, because adding your taxable gain to your other income determines which rate of CGT you need to pay.
For example
You work for an employer, and use up part of your basic income tax band with your salary. When you dispose of an asset, the capital gain is ‘stacked’ on top of your other income.
- Any part of the gain that falls within the remaining basic rate band is taxed at the basic CGT rate
- Any part that pushes you over into the higher rate band is taxed at the higher CGT rate
Our online calculator will help you estimate your Capital Gains Tax bill. You might also be able to claim Business Asset Disposal Relief (BADR) and pay a lower rate of CGT on assets which qualify. This was formerly known as Entrepreneur’s Relief.
The table below shows the rate of Capital Gains Tax charged on assets and property in different tax years.
| Asset Type | 2025/26 Rate of CGT |
2026/27 Rate of CGT |
| Most chargeable assets | 18% Basic 24% Higher |
18% Basic 24% Higher |
| Residential property | 18% Basic 24% Higher |
18% Basic 24% Higher |
| Assets qualifying for BADR | 14% | 18% |
What’s the difference between the Capital Gains Tax allowance and Capital Allowances?
Even though they sound similar enough to be confusing, the allowance for Capital Gains Tax and Capital Allowances are different parts of the same process.
Capital gains deal with the ‘gain’ you make when you dispose of an asset which has increased in value. You’ll pay it if your total gains are above the allowance (also known as the annual exempt amount).
Only individuals and trusts can use the annual exempt amount, but businesses can’t, so that’s where capital allowances come in. These enable businesses to offset the cost of big-ticket purchases (known as capital items) against their tax bill.
Capital Allowances
What are capital allowances for?
Claiming capital allowances gives a business tax relief against the assets it keeps and uses. This helps reduce its tax bill but Capital Allowances can be a bit tricky because there are different types available, each with their own thresholds and rules.
Corporation Tax for Limited Companies
Who pays Corporation Tax?
Limited companies pay Corporation Tax on their profits, which they might make as a result of doing business, selling assets for more than they cost, or through investments. The director(s) must submit a Company Tax Return to declare the business’ profits, claim any tax relief, and pay the right amount of Corporation Tax.
The video below covers the basics of Corporation Tax, and we also have other guides for limited companies.
Corporation Tax rates
The rate of Corporation Tax you must pay is adjusted based on how much profit the company makes.
- Profits over £250,000: Companies pay the 25% Corporation Tax main rate on profits over £250,000
- Profits up to £50,000: Incur a Corporation Tax small profits rate of 19%
- Marginal relief: Offers a gradual increase of Corporation Tax from 19% to 25% for companies whose profits fall between £50,000 and £250,000. Our article explains how marginal relief is worked out for Corporation Tax
Dividend Tax
Will I pay dividend tax?
If you own shares in a company then you may receive dividend payments from the company’s profits. These dividends are a source of income so you’ll need to pay tax on them.
Dividend tax is payable at a different rate to income tax so, if you’re a director in your own limited company, you might find it more tax efficient to pay yourself using a combination of dividends and a salary. You’ll pay income tax on the salary part of your income, and dividend tax on the dividends.
How dividends work with other types of tax and allowances
The income you receive from dividend payments isn’t subject to National Insurance (so you won’t pay NI on any dividends). If the total amount of dividend payments you receive in a tax year is more than the Personal Allowance (or if you’ve already used it up), you’ll still be able to claim an additional tax-free dividend allowance.
Our online dividend tax calculator will help you work out how much you can expect to pay on dividend income in a tax year.
Dividend Allowance
The dividend allowance is the amount you can receive from dividends in a tax year before starting to pay tax on them. Once you go over it, you can deduct the allowance from the total amount of dividends you receive, and pay dividend tax on the amount that’s left. The dividend allowance for 2025/26 and 2026/27 is £500.
Can I claim the dividend allowance as well as the Personal Allowance?
Yes! The good news is that you can use the dividend allowance as well as your personal tax allowance. For example, in 2026/27 you could take a salary of £12,570 and a dividend of £500 without incurring tax or National Insurance.
How much tax will I pay on dividends?
The rate of dividend tax you pay is based on what income tax band you’re in. You can work this out by adding the total amount of dividend income you receive to your other income. Don’t forget to deduct your Personal Allowance and Dividend Allowance!
2025/26 and 2026/27 Dividend tax rates
| Threshold and Dividend Tax Rate 2025/26 |
Threshold and Dividend Tax Rate 2026/27 |
|
| Personal Allowance | £0 – £12,570 0% |
£0 – £12,570 0% |
| Basic rate | £12,571 - £50,270 8.75% |
£12,571 - £50,270 10.75% |
| Higher rate | £50,271 - £125,140 33.75% |
£50,271 - £125,140 35.75% |
| Additional rate | £125,140 upwards 39.35% |
£125,140 upwards 39.35% |
‌‌‌‌‌
Our free online tax calculator will help you compare your take home pay as a sole trader versus as the director of a limited company, so you can work out the most tax-efficient structure for your business.
VAT
UK VAT registration threshold
The VAT registration and deregistration thresholds are:
- Registration threshold: £90,000
- Deregistration threshold: £88,000
The thresholds mean you must register your business for VAT once its taxable turnover reaches the threshold in any 12 month period, and may request to deregister if your taxable turnover is below £88,000.
For some businesses it can be more tax efficient to register for VAT voluntarily rather than waiting for their turnover to reach the threshold (our article explains this in a bit more detail!)
UK VAT Rates
The rate of UK VAT that VAT registered businesses charge is based on the type of goods or services being supplied.
| Rate Name | VAT Rate |
| Standard rate: The rate of VAT which applies to most goods and services. | 20% |
| Reduced rate: A lower rate which applies to certain goods and services, such as electricity and gas. | 5% |
| Zero rate: Applies to some goods and services, such as food or children’s clothing. | 0% |
Tax is an incredibly complex subject! Learn more about our online accountancy services and call 020 3355 4047, or get an instant online quote. Also be sure to check out our key tax year dates page.
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Hi Admin
Self-Employed: How to calculate your tax?This comment is very useful for law purposeuk solicitor qredible
Hi Anshul, thanks for your message. Do you need help with your tax return? Best wishes, Elizabeth
I cannot find any clarity on whether the threshold for National Insurance will revert to what it was when the 1.25% decrease comes into effect.
Hi Helen
Thanks for your message. The threshold will stay the same, and only the rate will go down when the 1.25% decrease comes into effect.
If it helps, or if you need a source, the government publish a rates and thresholds document (which has been updated to show the Levy reversal). The Budget announcement document has also been published, and this includes more detail (points 3.19 and 3.20 cover this in particular).
I hope this helps, but please do let us know if there’s anything at all we can do!
Best wishes
Elizabeth
Your tax guide came to my rescue! The way you break down rates, thresholds, and the Personal Allowance is exactly what I needed. Thanks for making the tax journey feel a lot less daunting!
Hi Sophia
Thank you for your kind words! So glad we could help – let us know if there’s anything at all we can do for you.
Best wishes
Elizabeth
This UK tax guide is my go-to for untangling the tax mess. It’s like having a personal tax whisperer, breaking down everything from income tax to VAT. The sneak peek into 2024/25 is a game-changer. Thanks for making tax talk less of a headache! 🌟💸
Hello everyone. I’m going to set up a very small business/hobby, only working about 6 hours or so each week and I won’t be earning much at all. I’ll be cleaning people’s cookers and kitchens. I’ll only be charging them between £20 and £40, I’m going to register as a limited company, I’ll be earning less than £120 per week, I’ve looked into it and found out I won’t pay vat, but will I pay tax and NI ? I’ll be letting the DWP know because I’m on sickness benefit because of health conditions and I’m not reliable enough to… Read more »
Hi Gareth Thanks for your message! OK, so first off, some information which might help: The Trading Allowance means that you can earn a maximum of £1,000 in a tax year from self-employment without needing to pay tax on it, or even register with HMRC (although this might impact any benefits you receive, so be sure to double-check with DWP!). There are other business structures to choose from too (in case this is something that you were not aware of) As for tax, this article explains everything in more detail, and includes links to other resources which should help, but… Read more »
Thank you so much, you’ve made it all a lot simpler for me. It is a scary thing to begin because I don’t want to do anything wrong by mistake
You’re very welcome, we’re glad to help!