UK Tax Rates
While we’re all aware that tax is inevitable, it is often confusing and daunting for businesses. Alongside all the different types of tax that your company may be eligible for, there is a set of regulations that governs thresholds, allowances, rates and more. In this guide, we cover some of the main types of tax and summarise the allowances and thresholds for 2025/26 and 2026/27.
Income Tax
Income Tax is payable on any money you earn over a certain threshold, known as the Income Tax Personal Allowance. For 2025/26 and 2026/27, the Personal Allowance is £12,570. If you earn £18,000 for example, you’ll pay the basic rate of tax (20%) on £5,430 of your income.
Higher earners pay a higher percentage of tax once their income reaches a certain threshold. This can change, meaning it’s important to understand the thresholds for the current tax year. For 2025/26 and 2026/27, the tax bands are as follows:
- Tax-free Personal Allowance – £12,570
- Basic rate (paid on earnings between £12,571 and £50,270) – 20%
- Higher rate (paid on earnings between £50,271 and £125,40) – 40%
- Additional rate (paid on earnings above £125,40) – 45%
If you live and work in England, Wales or Northern Ireland and earn £60,000 pa, you’ll pay:
- 0% tax on the first £12,570
- 20% basic rate tax on the income that falls into the £12,571 – £50,270 bracket
- 40% higher rate tax on the income that falls into the £50,271 – £60,000 bracket
Dividend Tax
Those who own shares in a company may receive dividend payments from the company’s profits. Dividend Tax is payable on any money received as a dividend that exceeds the £500 allowance. The rates that are applied are different to those applied to Income Tax, and for 2025/26 are as follows
- Tax-free Personal Allowance – £500
- Basic rate (paid on earnings between £12,571 and £50,270) – 8.75%
- Higher rate (paid on earnings between £50,271 and £125,40) – 33.75%
- Additional rate (paid on earnings above £125,40) – 39.35%
In 2026/27, the basic and higher rates will rise to 10.75% and 35.75% respectively.
Corporation Tax
Limited companies are required to pay Corporation Tax on their profits. The rate of tax paid depends on how much profit is made.
- Small profits rate (paid on profits up to £50,000) – 19%
- Main rate (paid on profits of over £250,000) – 25%
Profits of between £50,000 and £250,000 are subject to marginal relief, which is a gradual increase in Corporation Tax according to how much profit is made.
VAT
Businesses turning over £90,000 or more in a 12-month period must register for VAT. The three main VAT rates are:
- 20% standard rate – most goods and services
- 5% reduced rate – some energy-saving products, children’s car seats, and certain renovations
- 0% rate – books, children’s clothes, and most food (not including hot or restaurant meals)
Help with navigating tax
Navigating tax is notoriously challenging, so it’s advisable to seek assistance. Contact a reputable accountant today for help with understanding thresholds, calculating tax bills and more.
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