If you run a business in the UK, the tax bands for 2025/26 are the numbers that determine how much of your profit you keep and how much goes to HMRC. Getting them wrong means overpaying tax or missing reliefs. Getting them right means better cash flow and fewer surprises at year end.
This article covers the key UK taxation bands for the current tax year (6 April 2025 to 5 April 2026). We'll cover income tax, National Insurance, dividend tax, corporation tax, and the main allowances you need to know. All figures are for England, Wales, and Northern Ireland unless stated. Scottish rates differ and are not covered here.
Income Tax Bands 2025/26
The personal allowance remains frozen at £12,570 [1]. This is the amount you can earn before paying any income tax. It applies to most people, but it starts to reduce once your adjusted net income exceeds £100,000. For every £2 of income above that threshold, your personal allowance drops by £1 [1]. At £125,140 of income, your personal allowance is zero [1].
The basic rate band is £12,571 to £50,270. Income in this band is taxed at 20% [1]. The higher rate band runs from £50,271 to £125,140, taxed at 40% [1]. Above £125,140, the additional rate of 45% applies [1].
These bands have been frozen since April 2021 and are scheduled to remain at these levels until April 2028. That means more people are being dragged into higher rate tax as their earnings rise with inflation. It is called fiscal drag, and it affects many business owners who take a combination of salary and dividends.
Example: Sole Trader with £63,400 Profit
Take a freelance consultant in Manchester with a sole trader profit of £63,400 in 2025/26. Their personal allowance covers the first £12,570. The next £37,700 (up to £50,270) is taxed at 20%, costing £7,540. The remaining £13,130 falls into the higher rate band and is taxed at 40%, costing £5,252. Total income tax: £12,792. That is before Class 4 National Insurance, which we cover below.
National Insurance Thresholds 2025/26
National Insurance is a separate tax on earnings. For employees and directors, the key thresholds are:
- Primary threshold (employee NI): £12,570 per year. Earnings above this are charged at 8% up to £50,270, then 2% above that.
- Secondary threshold (employer NI): £9,100 per year. Employer NI at 13.8% applies above this level.
- Employment Allowance: Up to £10,500 off your employer NI bill if eligible. Most businesses with a single director or fewer than two employees should check eligibility.
For self-employed sole traders, Class 2 NIC is now effectively abolished for most people. Class 4 NIC is charged at 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270.
Example: Director Salary Planning
Many limited company directors pay themselves a salary of £12,570. This matches the personal allowance and the primary NI threshold, so no income tax or employee NI is due. But employer NI at 13.8% kicks in above £9,100. If the company claims Employment Allowance, that employer NI is covered. If not, the director might take a lower salary of £9,100 to avoid employer NI entirely, then take the rest as dividends.
Dividend Tax Rates 2025/26
Dividends are taxed at lower rates than salary, which is why they are popular with limited company directors. The dividend allowance for 2025/26 is £500. That means the first £500 of dividend income is tax-free. Above that, the rates are:
- Basic rate taxpayers: 8.75%
- Higher rate taxpayers: 33.75%
- Additional rate taxpayers: 39.35%
These rates apply to dividend income that falls within each tax band. So if your total income (salary plus dividends) is £50,270, the dividends above the £500 allowance are taxed at 8.75% up to that threshold, then at 33.75% above it.
Example: Director Taking Salary and Dividends
A director of a Birmingham-based consultancy takes a salary of £12,570 and dividends of £37,700. Total income: £50,270. The salary uses the personal allowance. The first £500 of dividends is tax-free. The remaining £37,200 of dividends is taxed at 8.75%, costing £3,255. Total tax: £3,255 plus employer NI on the salary (if any). Compare that to taking the same amount as salary, which would trigger income tax at 20% and employee NI at 8% on most of it.
Corporation Tax Rates 2025/26
Limited companies pay corporation tax on their profits. The rates for 2025/26 are:
- Small profits rate: 19% on profits up to £50,000.
- Main rate: 25% on profits above £250,000.
- Marginal relief: Applies between £50,000 and £250,000. The effective rate rises gradually from 19% to 25%.
If your company has associated companies (other companies under common control), the thresholds are divided by the number of associated companies plus one. So two associated companies means the small profits rate applies up to £25,000 each.
Capital Gains Tax 2025/26
Capital gains tax (CGT) rates changed significantly in the 2024 Autumn Budget. For 2025/26:
- Basic rate taxpayers: 18% on most assets (10% for Business Asset Disposal Relief, BADR).
- Higher rate taxpayers: 24% on most assets (14% for BADR).
- Residential property: 18% basic rate, 24% higher rate.
The annual exempt amount for 2025/26 is £3,000. BADR has a lifetime limit of £1 million and requires shares to be held for at least two years. From 6 April 2026, the BADR rate rises to 18%.
VAT Registration Threshold 2025/26
The VAT registration threshold is £90,000 of taxable turnover in a rolling 12-month period. Once you exceed that, you must register for VAT within 30 days. You can also register voluntarily below the threshold, which can be beneficial if you have significant VAT on your costs or want to appear more established.
Making Tax Digital (MTD) for VAT is already mandatory for all VAT-registered businesses. From April 2026, MTD for Income Tax becomes mandatory for self-employed and landlord income over £50,000, then from April 2027 for income over £30,000.
National Minimum Wage 2025/26
From 1 April 2026, the rates are [2]:
- National Living Wage (21+): £12.71 per hour.
- 18-20 rate: £10.85 per hour.
- Under 18 rate: £8.00 per hour.
- Apprentice rate: £8.00 per hour (for apprentices under 19, or 19+ in their first year).
If you employ staff, these rates are mandatory. Paying below them risks HMRC penalties and reputational damage.
Pension Annual Allowance 2025/26
The standard annual allowance for pension contributions is £60,000. This includes both your contributions and your employer's contributions. If your adjusted income exceeds £260,000, the allowance tapers down by £1 for every £2 of income above that, to a minimum of £10,000.
The money purchase annual allowance (MPAA) is £10,000 if you have already flexibly accessed a pension. The lifetime allowance was abolished from April 2024, but there are still limits on tax-free lump sums.
Putting It All Together
Understanding the UK taxation bands for 2025/26 is the foundation of good tax planning. Whether you are a sole trader, a limited company director, or a partnership owner, knowing where your income falls within these bands helps you decide how to structure your pay, when to take dividends, and whether to invest in your pension or your business.
If your turnover crossed the VAT threshold in the last 30 days, register inside the 30-day window. If your company profits are between £50,000 and £250,000, check whether marginal relief applies and whether you have associated companies. If your personal income is approaching £100,000, plan for the personal allowance taper.
For a full breakdown of how these bands apply to your specific situation, speak to an ICAEW qualified accountant. At Holloway Davies, we work with businesses across every sector and structure. You can see our services here or contact us directly.
We also have a range of calculators to help you estimate your tax position, and a glossary of tax terms if you need to check any definitions.