Tax in the UK follows a progressive structure. This means the more you earn, the higher the percentage of tax you pay on the additional income. We have created a breakdown of the most common tax bands, rates and allowances.
Your Tax-Free Personal Allowance
Your Personal Allowance is the amount you can earn before you start paying Income Tax. The Personal Allowance threshold has remained £12,570 since 2021 and should remain frozen until 2031.
If you earn over £100,000, your Personal Allowance decreases by £1 for every £2 of income above that limit, disappearing completely at £125,140.
For couples, the Marriage Allowance allows a lower-earning spouse to transfer £1,260 of their Personal Allowance to their partner, therefore reducing their tax bill.
If you are registered blind, you may qualify for the Blind Person’s Allowance, which provides an additional £3,250.
Income Tax Bands and Rates
Income Tax is a tax you pay on the money you earn. However, you pay different rates on different portions of your income.
| Tax Band | Income Range | Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 to £50,270 | 20% |
| Higher Rate | £50,271 to £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Each rate only applies to the income within that band, so not all of your income is taxable at the highest rate.
National Insurance Contributions
Employees and self-employed workers pay National Insurance, which funds benefits such as the State Pension.
| Contribution Type | Tax Rate |
|---|---|
| Employees (Class 1 National Insurance Contributions) | 8% on earnings between £12,570 and £50,270 2% on earnings above £50,270 |
| Employers (Class 1 National Insurance Contributions) | 15% on earnings above £5,000 |
| Self-Employed (Class 4 National Insurance Contributions) | 6% on profits between £12,570 and £50,270 2% on profits above £50,270 |
The Government abolished Class 2 National Insurance Contributions in April 2024.
Capital Gains Tax Bands and Rates
Capital Gains Tax applies when you sell an asset for a profit.
| Taxpayer Status | Tax Rate |
|---|---|
| Basic Rate | 18% |
| Higher Rate | 24% |
| Trustees | 24% |
The annual Capital Gains Tax exemption remains £3,000.
Corporation Tax
Corporation Tax applies to company profits.
| Amount of Profit | Tax Rate |
|---|---|
| Up to £50,000 | 19% |
| Over £250,000 | 25% |
Marginal Relief applies to profits between £50,000 and £250,000. Companies can also reduce their tax liability through Capital Allowances and R&D tax reliefs.
Dividend Tax Bands and Rates
If you earn Dividends from shares, you will pay tax above the Dividend Allowance.
| Tax Band | Tax Rate |
|---|---|
| Dividend Allowance | £500 |
| Basic Rate | 10.75% |
| Higher Rate | 35.75% |
| Additional Rate | 39.35% |
VAT Rates and Thresholds
VAT applies to most goods and services, except for exempt and zero-rated items.
| VAT Type | Amount / Rate |
|---|---|
| VAT Registration Threshold | £90,000 |
| VAT Deregistration Threshold | £88,000 |
| Standard VAT Rate | 20% |
| Reduced VAT Rate | 5% |
| Zero VAT Rate | 0% |
National Minimum Wage and National Living Wage
The government sets legal minimum hourly pay rates. There are different rates for different age groups and for apprentices. These rates apply across the UK regardless of region or industry.
| Age Group | Tax Rate |
|---|---|
| Apprentices / Under 18s | £8.00 per hour |
| 18 to 20 | £10.85 per hour |
| 21+ (National Living Wage) | £12.71 per hour |
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.