This guide breaks down UK tax rates and thresholds for sole traders, limited companies, partnerships, employers, and other business owners. While paying tax is unavoidable for most people, the rules around how and when tax applies can be confusing—especially if you run a business or earn income in more than one way.
Depending on your situation, you may need to understand several different taxes, including Income Tax, Corporation Tax, VAT, Dividend Tax, and National Insurance.
How your business is structured plays a major role in determining:
- Which taxes you need to pay
- How much tax you owe
- What records you must keep
- Which deadlines apply to you
Your tax position can also change based on whether you are an employee, an employer, or both. For example, company directors often receive a salary (taxed under PAYE) while also taking dividends, and many people run a side business alongside employment.
One key principle to remember is that tax is generally charged on profit, not turnover. That means allowable expenses and losses reduce how much tax you pay—so keeping accurate records matters.
This guide explains the main taxes that may affect both your business income and personal earnings. If you need tailored advice or accounting support, our team can help through our online accounting services, or you can request an instant quote.
Tax Years Covered in This Guide
This guide includes tax rates and thresholds for:
- 2024/25
- 2025/26 (6 April 2025 to 5 April 2026)
- Expected changes for 2026/27, where available
We include multiple tax years to help with both current compliance and forward planning. For example, if you are filing a 2024/25 Self Assessment return, you will need the correct rates before the 31 January 2026 deadline, but it’s also useful to understand what lies ahead.
When Do UK Tax Rates Change?
Tax rates and allowances are usually announced before the start of a new tax year and typically remain fixed until the following year. Occasionally, mid-year changes can occur.
The UK tax year always runs from 6 April to 5 April.
Income Tax and the Personal Allowance
How Income Tax Bands Work
Income tax in the UK operates on a marginal system, meaning different portions of your income are taxed at different rates. Each tax band applies only to the part of your income that falls within that range.
A helpful way to think about this is as a series of containers:
- Your income fills the first band and is taxed at the lowest rate
- Any excess then flows into the next band and is taxed at a higher rate
- This continues until all income is accounted for
Earning more does not mean all your income is taxed at a higher rate—only the portion that crosses into the next band.
What Is the Personal Allowance?
The Personal Allowance is the amount you can earn each tax year before paying income tax. It is deducted from your total income, and tax is only applied to what remains.
You can only use the Personal Allowance once per tax year, even if you have multiple income sources (such as employment, self-employment, or rental income).
If you are self-employed, you may also be able to use the £1,000 trading allowance against your business income.
Personal Allowance Amount (2024/25–2026/27)
The Personal Allowance is currently £12,570 and has been frozen at this level for:
- 2024/25
- 2025/26
- 2026/27
Any income above this threshold is taxable.
High earners:
If your income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 earned above this level. It is fully removed once income reaches £125,140.
Income Tax Rates (England, Wales & Northern Ireland)
| Tax Band | Threshold | Rate |
|---|---|---|
| Personal Allowance | £0 – £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Example:
If you earn £60,000, you’ll pay:
- 0% on the first £12,570
- 20% on income up to £50,270
- 40% on the portion above £50,270
Income Tax in Scotland
Scotland uses different tax bands and rates, including a newer Advanced Rate. Scottish thresholds for 2026/27 have not yet been confirmed.
A Scottish taxpayer earning £100,000 in 2025/26 would pay income tax across multiple bands, ranging from 19% at the lowest level to 45% on income above £75,000, and 48% above £125,140.
Property Income Tax Changes
From April 2027, property income for individuals in England, Wales, and Northern Ireland will be taxed at higher rates:
- Basic rate: 22%
- Higher rate: 42%
- Additional rate: 47%
Property profits earned through a limited company will continue to be taxed under Corporation Tax rules.
National Minimum Wage & National Living Wage
- Workers aged 21 and over must be paid the National Living Wage
- £12.21 per hour (2025/26)
- £12.71 per hour (from April 2026)
- Workers under 21 are paid according to National Minimum Wage age bands
- Rates typically increase each tax year
National Insurance Contributions (NICs)
National Insurance is paid by:
- Employees
- Employers
- Self-employed individuals
NICs help determine eligibility for benefits and the State Pension.
Classes of National Insurance
- Class 1 (Primary): Employees
- Class 1 (Secondary): Employers
- Class 1A / 1B: Benefits in kind
- Class 2: Abolished from April 2024
- Class 3: Voluntary contributions
- Class 4: Self-employed profits
You may pay more than one class if you earn income in different ways.
Corporation Tax for Limited Companies
Limited companies pay Corporation Tax on profits from trading, asset sales, or investments.
Corporation Tax Rates
- 19% on profits up to £50,000
- 25% on profits over £250,000
- Marginal relief applies between £50,000 and £250,000
Dividend Tax
Dividends are taxed differently from salary income and are not subject to National Insurance.
Dividend Allowance
- £500 for 2024/25, 2025/26, and 2026/27
This allowance can be used in addition to the Personal Allowance.
Dividend Tax Rates (Over Allowance)
- Basic rate: 8.75% (10.75% from 2026/27)
- Higher rate: 33.75% (35.75% from 2026/27)
- Additional rate: 39.35%
VAT Thresholds and Rates
VAT Registration Thresholds
- Registration: £90,000
- Deregistration: £88,000
VAT Rates
| Type | Rate |
|---|---|
| Standard | 20% |
| Reduced | 5% |
| Zero-rated | 0% |
Some businesses choose to register voluntarily for VAT before reaching the threshold.
