Tax Rates
Income Tax rate and bands
The standard Personal Allowance is £12,570, which is the amount of income you do not have to pay tax on.
Your Personal Allowance may be bigger if you claim Marriage Allowance or Blind Person’s Allowance. It’s smaller if your income is over £100,000.
Other allowances
You may have tax-free allowances for:
savings interest
dividend income
your first £1,000 of income from self-employment - this is your ‘trading allowance’
your first £1,000 of income from property you rent (unless you’re using the Rent a Room Scheme)
You pay tax on any interest, dividends or income over your allowances.
National Insurance
Class 1 national Insurance - employee
If you’re employed, You pay Class 1 National Insurance contributions. An employee’s Class 1 National Insurance is made up of contributions:
deducted from your pay (employee’s National Insurance)
paid by your employer (employer’s National Insurance)
The amounts deducted and paid depend on:
the employee’s National Insurance category letter
how much of the employee’s earnings falls within each band
Class 2 and 4 national Insurance - self employed
If you’re self-employed and your profits are £12,570 or more a year, you usually pay Class 2 and Class 4 National Insurance rates.
Most people pay Class 2 and Class 4 National Insurance through Self Assessment.
Some self-employed people do not pay National Insurance through Self Assessment, but may want to pay voluntary contributions. These are:
examiners, moderators, invigilators and people who set exam questions
people who run businesses involving land or property
ministers of religion who do not receive a salary or stipend
people who make investments for themselves or others - but not as a business and without getting a fee or commission
Class 1 national Insurance - employer
Employer National Insurance Contributions (NICs) are mandatory payments made by employers in the UK to HMRC on behalf of their employees.
These contributions fund state benefits and services like the NHS and pensions. Employer NICs are not deducted from employees' earnings and paid by the employer to HMRC.
There are different categories of NICs, including Primary Class 1, Secondary Class 1, Class 1A, and Class 1B, each with its own rates and thresholds set by HMRC. Compliance with NICs regulations is essential to avoid penalties and ensure legal compliance.
Dividends
You may get a dividend payment if you own shares in a company. You can earn some dividend income each year without paying tax.
You do not pay tax on any dividend income that falls within your Personal Allowance. You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance. You do not pay tax on dividends from shares in an ISA.
Paying tax on dividends
For dividends up to £10,000, you can tell HMRC by:
asking HMRC to change your tax code - the tax will be taken from your wages or pension.
putting it in your Self Assessment tax return, if you already fill one in
You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year.
For dividends over £10,000 you will need to:
fill in a Self Assessment tax return.
Capital Gains Tax
CGT is the profit made on the sale or disposal of a certain asset that has increased in value.
There is a tax free allowance which is taken into consideration before working out the profit figure. More detail can be found on our CGT page.
Inheritance Tax
Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s passed away.
No Inheritance Tax is usually payable if either:
the value of the estate is below the £325,000 threshold
everything above the £325,000 threshold is left to the spouse, civil partner, a charity or a community amateur sports club
If a home is given to the children (including adopted, foster or stepchildren) or grandchildren the threshold can increase to £500,000.
For someone who is married or in a civil partnership and their estate is worth less than the threshold, any unused threshold can be added to the partner’s threshold when they die.
Need expert help with a Tax or accounting issue?
Speak to one of our qualified accountants to see how we can help you.
