Read our guide to UK tax rates and thresholds for sole traders, limited companies, partners and partnerships, employers, and other businesses.

UK tax is a massive subject, so getting to grips with all of the rules and regulations can be difficult. With so many different types of tax, each with their own tax bands and thresholds, allowances, rates, and relief schemes, it’s understandable you might feel a bit lost!

Just to make things even more confusing, the structure of a business also affects its tax reporting requirements and deadlines. This means the way you pay tax varies depending on whether you’re a sole trader, a limited company, a partnership, or another type of business.

The type and rate of taxes you pay can also change according to your employment 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!

Our guide to business tax explains the tax brackets and rates for the 2024/25 tax year which starts 6th April 2024 and ends 5th April 2025. For comparison we also include last year’s 2023/24 rates from 6th April 2023 to 5th April 2024, as well as the rates for 2025/26 (6th April 2025 to 5th April 2026) which were announced at the Chancellor’s Autumn Statement in October 2024.

We’ll go through how different types of tax might affect you, and what this means for being tax efficient in your business, including:

• Personal Allowance
• Income tax thresholds, rates, and bands
• National Minimum Wage (NMW) and National Living Wage (NLW)
• National Insurance for employers, employees, and self-employed people
• Capital Gains Tax
• Capital Allowances
• Corporation Tax
• Dividend Tax
• VAT registration and deregistration thresholds, and VAT rates

When do tax rates change?

Tax rates and allowances are normally set before the start of a new tax year and then stay in place at the same level until the following year, although mid-year changes do sometimes happen.

 
Our guide below explains 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.
 

Personal Allowance

What is the tax-free Personal Allowance?

The personal allowance is the amount you can earn in a tax year before you need to start paying income tax. The allowance will be deducted from the total amount you earn in a year, so if you go over it you’ll still only pay tax on the part of your income above the threshold.

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.

How much is the Personal Allowance in 2024/25?

The tax-free personal allowance normally increases slightly each year, but the threshold for 2024/25 (6th April 2024 – 5th April 2025) is the same as the 2023/24 level of £12,570, and it will not change in 2025/26.

 
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

It’s worth noting that the tax-free Personal Allowance starts to reduce if you earn a higher level of income. 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.

Income Tax

How do income tax thresholds, rates, and allowances work?

A tax rate is the percentage of tax payable on money within a particular range, known as a tax band. Income tax in the UK is worked out as a series of marginal bands, so you only pay the relevant tax rate on the part of your income which falls within that tax band.

 
It helps to think of the income tax system as a stack of containers. Each container represents a tax band which holds a portion of your salary at a particular level of income. You’ll pay one rate of tax on the first container of income. If your earnings are more than the first container can hold, you’ll start filling up the next container, 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 of your earnings. You’ll only pay the new tax rate on the part of your earnings which falls within the new tax band.

What are the income tax rates and thresholds

The table below shows the income tax rates and band thresholds for 2024/25 as well as for last year (2023/24) and next year (2025/26) in England, Wales, and Northern Ireland. Scotland uses different tax bands and thresholds, so these are shown in the following section.

2023/24, 2024/25, and 2025/26 Income tax in England, Wales, and Northern Ireland

2023/24 and 2024/25 Income tax in Scotland

This table shows the Scottish income tax band thresholds in 2023/24 and 2024/25, along with the percentage tax rate which applies to the income in each band. The 2024/25 tax year also includes the introduction of a new ‘Advanced rate’ tax band for taxpayers in Scotland.

The Scottish income tax rates for 2025/26 have not yet been announced.
 

The National Minimum Wage (NMW) and National Living Wage (NLW)

There are rules which state the basic minimum hourly rate an employer must pay an employee, depending on how old they are.

• Employees aged 21 and older must receive the National Living Wage (NLW), which is £11.44 per hour. This will increase to £12.21 from April 2025.
• 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 worked out on the basis of the employee’s age, although there are different rates which apply for apprentices. Our table below shows the rate of National Minimum Wage for 2024/25 as of 1st April 2024, and the expected rates for 2025/26 (starting from 1st April 2025).
 

How much is the National Living Wage?

 
From 1st April 2024 employers must pay the National Living Wage to employees who are 21 or older. The rate will increase to £12.21 from 1st April 2025.

National Insurance

Does everyone need to pay National Insurance?

You’ll need to make National Insurance Contributions on any earnings you get above the NI payment threshold if you’re aged 16 or over, up until you reach State Pension age. 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.

National Insurance is paid by employees and self-employed workers on their income, and by employers on the wages they pay their staff. The rate of National Insurance you pay can change because it depends on your employment status, as well as on how much money you earn.

There are different types of National Insurance, known as ‘classes’, and the class you pay depends on the source of income. For instance, self-employed people pay Class 4 National Insurance.
 

• Class 1 (Primary): Employees pay this on the wages they earn from an employer
• Class 1 (Secondary): Employers make these contributions towards their employees’ National Insurance
• Class 1A or 1B: Some employers may also need to make National Insurance contributions on the equivalent financial value of any work benefits they provide to employees, (sometimes known as Benefits in Kind, or BiKs)
• Class 2: Self-employed people pay Class 2 NI on the profits they earn from their business activities, although this type of National Insurance was abolished from April 2024.
• Class 3: 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: 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.

Another common example is someone who is both an employer and an employee (such as someone who is a director in their own limited company), but there are other reasons too.

How much National Insurance will I pay?

Payment thresholds and rates vary across different types of National Insurance, so the amount of NI you will pay in a year depends on both how you earn your money, and whether you go over the payment threshold.

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 money 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.

Although National Insurance thresholds will remain frozen until April 2028, the Chancellor’s Spring Budget 2024 announced a new rate of Class 1 NI for employees in 2024/25. We’ll show the rates and thresholds in the tables below.

2024/25 Class 1 (Primary) National Insurance thresholds and rates for employees

Employees don’t pay National Insurance or accrue benefits, such as qualifying payments towards their State Pension, on earnings below the Lower Earnings Limit (LEL).
 

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 the deductions you make on behalf of your employees, as well as 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 guide for new employers explains what you need to do if you’re taking on staff for the first time.

2024/25 and 2025/26 Class 1 (Secondary) National Insurance thresholds and rates for employers

The National Insurance Employment Allowance for employers

Eligible employers can claim relief on the cost of their National Insurance bill using the Employment Allowance.

 
The employment allowance for 2025/26 will increase to £10,500 from April 2025.

Employers must have at least 1 employee (or 2 directors) on the payroll to be eligible for the Employment Allowance. The directors can’t already be claiming the allowance through another company.

Class 1A or 1B National Insurance for employers

As well as making NI contributions on the wages they pay their staff, employers must also make Class 1A and 1B National Insurance contributions on the equivalent financial value of any work benefits (known as Benefits in Kind, or BiKs) which they provide to employees.

The rate of Class 1A and 1B 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, as well as submitting a P11D(b) form to report the National Insurance they owe.
 

National Insurance for self-employed people

Depending on how much you earn, you may need to make Class 2 and Class 4 National Insurance contributions on any profits you make from self-employment. The amount you must pay is worked out using your Self Assessment tax return.

There are currently two types of self-employed National Insurance which, like self-employed Income Tax, you pay on your profits, not your total income. So make sure you claim tax relief on your expenses!

• Class 2 National Insurance is a flat weekly rate. This type of NI will be abolished from April 2024 onwards.
• Class 4 NI is charged as a percentage of the self-employed profits you earn above the threshold

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 2 and 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.

2024/25 Class 2 and Class 4 self-employed National Insurance thresholds and rates

Self-employed National Insurance has gone through several changes in recent years, with adjustments to both the rates and thresholds. Class 2 National Insurance will be abolished altogether from April 2024, and the main rate of Class 4 NI will be reduced. Our table below sets out the different rates of NI applied to self-employed profits, and the point at which each rate kicks in.
 

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 that you own. Disposing of an asset 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’ that 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.

2024/25 and 2025/26 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). The exemption threshold is different for individuals and trustees. Just be aware you might also see this referred to the as Capital Gains Tax allowance.
 

 
You’ll start paying CGT on gains you make above those thresholds. The rate of Capital Gains Tax you pay depends on what the gain results from (in other words, what you disposed of), and what rate of income tax you pay.

How much is the rate of Capital Gains Tax?

Capital Gains Tax is charged based on what you disposed of in order to make the gain, and whether you’re a basic rate or higher rate taxpayer. The rate of property disposals for higher rate taxpayers was reduced for the 2024/25 tax year, and then the rate of other chargeable assets changed in October 2024.

2023/24 Capital Gains Tax Rate

2024/25 Capital Gains Tax Rate (before 30th October 2024)

 
You may also be eligible to claim Business Asset Disposal Relief on any assets that qualify. This was formerly known as Entrepreneur’s Relief.

Capital Gains Tax from 30th October 2024 and 2025/26

The changes made to Capital Gains Tax charged on assets take effect from 30th October 2024.

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 Capital Gains Tax on the gains you make if the total is above the allowance (also known as the annual exempt amount). It’s a bit like the Personal Allowance or the Dividend Allowance in that respect.

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?

Capital allowances enable a company to claim tax relief (and therefore reduce their tax bill) against assets they keep and use in the business. They can be a bit tricky because there are different types available, each with their own thresholds and rules.

Corporation Tax

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.

Watch our video below to learn more about the basics of Corporation Tax.
 

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 Corporation Tax at a rate of 25% on profits over £250,000
• Profits up to £50,000: Incur Corporation Tax at a 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 about Company Tax Returns 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. You’ll normally pay dividend tax by submitting a Self Assessment tax return to report any untaxed income you receive.

Dividend tax is payable at a different rate to income tax, so if you’re a director in your own a 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.

 
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 reduced by half in April 2023 and will do so again in April 2024, so you’ll pay tax on more of your dividend income. The dividend allowance for each year is:

• 2023/24: £1,000
• 2024/25: £500
• 2025/26: £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 2024/25 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!

2023/24, 2024/25 and 2025/26 Dividend tax rates

The dividend tax rate which is payable on dividends over the allowance is the same in 2023/24 and 2024/25.
 

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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

2024/25 and 2025/26 VAT registration threshold

The VAT registration and deregistration thresholds increased with effect from 1st April 2024:

• Registration threshold: increase from £85,000 to £90,000
• Deregistration threshold: increase from £83,000 to £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. The rates charged are the same for 2023/24 and 2024/25.
 

 
Tax is an incredibly complex subject, so it’s easy to get confused. 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.