Income Tax

Key takeaways

You pay Income Tax on income above your tax-free Personal Allowance (£12,570 for 2026/27).
Rates step up: 20% (basic), 40% (higher), 45% (additional).
The self-employed pay it on profits through Self Assessment.
Rates and bands are set by HMRC and can change each year.

What is Income Tax?

Income Tax is charged on most types of income: employment earnings, self-employed profits, most pensions, and some savings and dividends (which have their own rules). Employees usually pay it automatically through PAYE; the self-employed report and pay it via Self Assessment.

The 2026/27 rates and bands

Everyone gets a tax-free Personal Allowance of £12,570. Above that (in England, Wales and Northern Ireland):

Basic rate 20% on income up to £50,270
Higher rate 40% up to £125,140
Additional rate 45% above £125,140

Scotland sets its own bands. The Personal Allowance also tapers away once income passes £100,000.

Worked example

You have £40,000 of taxable profit in 2026/27:

First £12,570 = tax-free (Personal Allowance)
Remaining £27,430 × 20% = £5,486 Income Tax
(plus National Insurance, worked out separately)

Frequently asked questions

Is Income Tax the same as National Insurance?

No, they are separate. Income Tax is charged on income above your allowance; National Insurance is a separate contribution with its own thresholds and rates.

How do the self-employed pay Income Tax?

Through Self Assessment: you report your profit and HMRC works out the tax, usually due by 31 January after the tax year.

Personal Allowance National Insurance (NIC)Self Assessment Dividend

Learn more

Source: GOV.UK ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.

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