UK tax brackets 2026: rates and personal allowances

The saying goes that nothing in life is certain except death and taxes. But anyone doing a tax return, who pays employees and has wrestled with the UK tax code will tell you that “certain” is a far cry from how they’d describe it.

Income tax rates have been frozen since 2021 in England, Northern Ireland, and Wales, but the UK tax structure has many layers that can impact the taxman’s overall bill, including new National Insurance rates introduced in 2025.

This up-to-date guide will provide you with a breakdown of the current tax brackets for UK employees and sole traders. We’ll also explain where your bill might go up this year; and how to keep it down while remaining legally compliant with HMRC.

Income Tax brackets for FY 2025/26 and 2026/27

Income tax is a charge on earnings that’s collected and managed by HMRC. It applies to all income sources, whether wages and salaries, profits from self-employment, or interest on savings.

In the 2025 Autumn Budget, Chancellor Rachel Reeves confirmed that the thresholds for basic rate and higher rate taxpayers in England, Wales, and Northern Ireland will remain frozen until 2031. With this, the current and near-future income tax rates are set at:

In the UK, we use a marginal rate of tax to calculate income tax bills. That means earners pay one rate of tax up to a set threshold, and then a higher percentage on each additional pound earned in the next threshold.

Income tax is only payable on earnings above the personal allowance of £12,570. Workers do not pay any tax if their take-home pay is below the personal allowance (more on this below).

Example: An employee earns an annual salary of £53,400. Their monthly payslip will show:

• 0% tax on earnings up to £12,570 
• 20% tax on all earnings between £12,571 and £50,270
• 40% tax on all earnings between £50,271 and £125,140
• 45% tax on all earnings over £125,140 (additional rate)

Income Tax brackets for Scotland

The Scottish Parliament sets its own income tax rates and bands, which means that Scottish taxpayers qualify for six income tax bands (although these are still collected by HMRC).

Scottish earners have seen some big changes to their income tax brackets this spring. Most notably, the introduction of a new “advanced” rate tax band of 45%.

According to former Deputy First Minister Shona Robison, this advanced tax grade will raise valuable revenue for Scotland’s public services. The current brackets are:

Tax freeze impact on UK earners

A ‘tax freeze’ is often presented as a positive for Brits. However, the Labour Party’s latest decision to fix income tax brackets actually has negative implications for earners in today’s economy.

Workplaces have seen record pay increases as rising inflation devalues the pound. Hays UK Salary & Recruiting Trends 2026 report reveals that 84% of employers increased salaries in the last 12 months, and the National Living Wage rise in April 2025 has forced many of the rest to do the same.

If income tax thresholds are not raised to reflect this increase, then workers and sole traders could find themselves qualifying for higher tax brackets even though their purchasing power hasn’t increased. This is called fiscal drag.

Given that 2024 was an election year, some UK employers hoped that income tax rates would rise after the Conservative Party lost power. Labour, however, pledged not raise income tax, and as of the latest Autumn Budget, these rates have remained unchanged.

Personal Allowance

The personal allowance is defined as the amount of income you can earn each tax year before you start paying income tax. For the 2025/26 tax year, the personal allowance is £12,570 for employees across the UK and including Scotland.

That means the first £12,570 that an individual earns in a set financial year will be tax-free, and is also why the basic rate and Scottish starter rate of income tax both start at £12,571.

What is the 60% tax trap?

Nothing is ever simple in the land of HMRC. One ‘quirk’ of the personal allowance is that the standard tax-free allowance begins to shrink when you earn over £100,000.

For every £2 earned above £100,000, the individual loses £1 of their personal allowance, so you won’t get any personal allowance if you earn over £125,140.

Also known as the ‘60% tax trap’, the result means higher-rate taxpayers (those earning between £50,271 and £125,140) could pay up to 60% tax on earnings.

There are ways to avoid this significant tax burden, such as contributing more to a pension or making charitable donations. You can also consult with a payroll service provider for expert advice on how to minimise your tax burden if this affects you as an employee, a business owner, or any higher paid employees of your business.

Other allowances

Besides the personal allowance, there are a few other tax allowances available in the UK, depending on your circumstances. They are:

• Marriage Allowance: married earners or civil partners can transfer part of an unused personal allowance to their spouse/partner
• Trading Allowance: self-employed workers can deduct the first £1,000 of trading profits from their taxable income
• Dividend Tax Allowance: company owners can receive up to £500 of income from shares you own in a company before paying tax on them (which is why many self-employed business owners use dividends to pay themselves as an employer).

Read more: How to tax bonuses correctly

Tax brackets for sole traders and self-employed

There is no difference between the amount of tax you pay as a sole trader versus an employee. Business drawings, the most popular method for self-employed workers to pay themselves, are taxed at the same rate as income tax.

How you report tax does differ, however. Income tax levies are usually deducted from small business payroll software through HMRC’s Pay As You Earn (PAYE) system.

Self-employed workers must instead report their income tax bill (and National Insurance contributions) as part of their Self Assessment tax return at the end of the year.

Tax brackets for side hustlers

More of us are starting side hustles than ever before, with research from Law Donut revealing that side hustlers earned an average of £914 a month in 2025. However, many earners heading into 2026 are having to work harder to maintain those returns, as rising living costs, higher taxes, and increased platform fees from marketplaces and gig apps eat into profits.

Tax regulators have hastened to keep pace with the phenomenon, and side hustlers are now expected to pay Side Hustle Tax if they earn £1,000 or more. While not an official tax, it’s a catch-all term for the rules that requires income from side hustles to be declared to HMRC once it passes this threshold. This is expected to increase to £3,000 from 2029, but income between £1,000 and £3,000 will still be taxable.

In truth, the new legislation is not an extra charge. Under the changes, side hustlers earning over the trading allowance of £1,000 must register for self-assessment. But they still won’t pay tax if they earn under the personal allowance, which is the same rule for sole traders.

It’s worth noting that you can only get the personal allowance once. Self-employed people must add all their side hustle earnings to the income from their main job and be taxed on the combined total by HMRC – hence the need to register for self-assessment.

UK tax brackets in summary

UK tax is an esoteric subject that feels, at times, almost deliberately muddled. Remember that the system is designed to fund essential public services – not just to trip you up.

By taking the time to understand tax brackets, side hustlers, self-employed workers, and employees can contribute their fair share while maximising take-home pay via allowable expenses and deductions.