Updated for the 2026/27 tax year. The figures in this guide generally apply from 6 April 2026 to 5 April 2027 unless a different period is stated.

Tax rates and thresholds affect much more than the amount eventually paid to HM Revenue and Customs.

They influence how much money a sole trader should reserve, whether a growing business needs to register for VAT, what it costs to employ someone and how a limited company balances salary, dividends and retained profit.

The difficulty is that different taxes use different periods, thresholds and calculations. Turnover is not the same as profit, company profit is not the same as a director’s personal income, and money in the bank is not necessarily available to spend.

This guide brings together the main UK tax rates and thresholds relevant to small businesses for 2026/27. It covers sole traders, limited companies, employers and VAT-registered businesses, together with the key reporting deadlines owners should plan for.

It is intended as a practical overview rather than personalised tax advice. Additional rules may apply to partnerships, landlords, companies with associated businesses, Scottish taxpayers, international transactions and businesses making exempt or mixed VAT supplies.

2026/27 Small Business Tax Rates at a Glance

Tax or Threshold	2026/27 Figure
Standard Personal Allowance	£12,570
Basic-rate Income Tax band	20% on the first £37,700 of taxable income after allowances in England, Wales and Northern Ireland
Higher-rate Income Tax	40%
Additional-rate Income Tax	45%
Self-employed Class 4 National Insurance	6% between £12,570 and £50,270, then 2%
Corporation Tax small profits rate	19%
Corporation Tax main rate	25%
Dividend allowance	£500
Dividend tax rates	10.75%, 35.75% and 39.35%
VAT registration threshold	More than £90,000 of VAT-taxable turnover
VAT deregistration threshold	Expected taxable turnover of £88,000 or less
Employer National Insurance	Generally 15% above the £5,000 annual secondary threshold per employee
Employment Allowance	Up to £10,500 for eligible employers
National Living Wage	£12.71 per hour for workers aged 21 and over
Capital Gains Tax annual exempt amount	£3,000 for most individuals

The table provides a starting point only. The amount actually payable depends on the business structure, total income, available allowances, expenses, reliefs and other personal or company circumstances.

The UK Tax Year and Company Financial Year Are Different

The UK personal tax year runs from 6 April to 5 April of the following year.

The 2026/27 tax year therefore runs from:

6 April 2026 to 5 April 2027.

This tax year is used for matters including:

Income Tax.
Personal allowances.
National Insurance.
Dividend tax.
Capital Gains Tax for individuals.
PAYE reporting.

A limited company normally has its own accounting period based on its financial year. Corporation Tax is calculated using the rates that apply during that accounting period.

VAT periods may be monthly, quarterly or annual and do not necessarily align with either the personal tax year or company financial year.

Income Tax Rates for England, Wales and Northern Ireland

The standard Personal Allowance for 2026/27 is £12,570.

For most taxpayers in England, Wales and Northern Ireland, Income Tax is then charged as follows:

Band	Taxable Income After Allowances	Rate
Basic rate	Up to £37,700	20%
Higher rate	£37,701 to £125,140	40%
Additional rate	Above £125,140	45%

Adding the standard Personal Allowance to the basic-rate band means that higher-rate tax generally begins when total income exceeds £50,270, provided the full Personal Allowance is available.

The Personal Allowance Taper

The Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000.

It is fully withdrawn when income reaches £125,140.

This creates a high effective tax rate on income within that range. Business owners approaching £100,000 of personal income should avoid relying on the standard tax bands without considering the allowance taper.

Scottish Income Tax Rates

Scottish taxpayers use different rates and bands for most income from employment, self-employment, pensions and property.

The 2026/27 Scottish bands after deducting the Personal Allowance are:

Band	Taxable Income After Allowances	Rate
Starter rate	Up to £3,967	19%
Basic rate	£3,968 to £16,956	20%
Intermediate rate	£16,957 to £31,092	21%
Higher rate	£31,093 to £62,430	42%
Advanced rate	£62,431 to £125,140	45%
Top rate	Above £125,140	48%

UK-wide rules generally continue to apply to dividend and savings income. Scottish taxpayers should therefore distinguish between their earned or property income and income taxed using UK-wide rates.

Tax for Sole Traders

A sole trader normally pays Income Tax and National Insurance on taxable business profit.

Taxable profit is broadly calculated as:

Business income minus allowable business expenses and relevant reliefs.

The tax calculation is not based simply on:

Money received into the bank account.
The amount withdrawn for personal use.
The closing bank balance.
Total invoice value without considering expenses.

Money withdrawn by a sole trader for personal use is normally recorded as drawings. Drawings are not a business expense and do not reduce taxable profit.

Self-Employed National Insurance for 2026/27

Self-employed people generally pay Class 4 National Insurance through Self Assessment when profits exceed the lower profits limit.

Profit Level	2026/27 Treatment
Below £7,105	Class 2 is not treated as paid automatically, although voluntary contributions may be available.
£7,105 or more	Class 2 contributions are generally treated as paid, protecting the National Insurance record without an actual Class 2 payment.
Above £12,570 up to £50,270	Class 4 National Insurance at 6%.
Above £50,270	Class 4 National Insurance at 2% on the excess.

National Insurance and Income Tax are calculated separately. A sole trader should therefore reserve enough money for both rather than applying the Income Tax rate alone.

Making Tax Digital for Income Tax

Making Tax Digital for Income Tax became compulsory for the first group of qualifying sole traders and landlords from 6 April 2026.

You generally need to use it from 6 April 2026 if your total qualifying income from self-employment and property was more than £50,000 in the 2024/25 tax year.

Qualifying income is based on gross self-employment and property income before deducting expenses.

The planned thresholds are:

Start Date	Qualifying Income Test
6 April 2026	More than £50,000 in 2024/25.
6 April 2027	More than £30,000 in 2025/26.
6 April 2028	More than £20,000 in 2026/27.

Those within Making Tax Digital for Income Tax generally need to:

Keep digital records of business income and expenses.
Use compatible software.
Send quarterly updates to HMRC.
Complete the required year-end tax return process.

Businesses approaching a future threshold should prepare before the beginning of the relevant tax year rather than waiting until the first quarterly update is due.

Carter Bookkeeping Services can help sole traders choose and configure suitable accounting software and establish consistent digital bookkeeping procedures.

Corporation Tax Rates for Limited Companies

Limited companies pay Corporation Tax on taxable company profits.

The main 2026 rates are:

Company Profit	Corporation Tax Treatment
£50,000 or less	Small profits rate of 19%, subject to the detailed rules.
Between £50,000 and £250,000	Main rate of 25% with potential Marginal Relief.
More than £250,000	Main rate of 25%.

Marginal Relief gradually increases the effective Corporation Tax rate between the lower and upper profit limits.

The £50,000 and £250,000 thresholds may be reduced where:

The company has associated companies.
The accounting period is shorter than 12 months.

For example, where a company has three other associated companies, the limits are divided between four companies. The standard £50,000 lower limit would become £12,500 and the £250,000 upper limit would become £62,500 for a full 12-month period.

Companies should not assume they qualify for the 19% rate solely because their individual profits are below £50,000 without checking associated-company rules.

Corporation Tax Is Charged Before Dividends

A company pays Corporation Tax on its taxable profit before distributing post-tax profit to shareholders as dividends.

Dividends are not normally deductible when calculating the company’s Corporation Tax liability.

A company must also have sufficient distributable reserves before declaring a dividend. Cash in the bank does not by itself prove that a lawful dividend can be paid.

Directors should ensure that dividends are supported by appropriate:

Accounts or management information.
Board records or written decisions.
Dividend vouchers.
Bookkeeping entries.

Dividend Tax Rates for 2026/27

The annual dividend allowance remains £500.

Dividend income above the available allowance is taxed according to the shareholder’s Income Tax band.

Tax Band	Dividend Rate for 2026/27
Basic rate	10.75%
Higher rate	35.75%
Additional rate	39.35%

The basic and higher dividend rates increased by two percentage points from 6 April 2026. The additional rate remained at 39.35%.

Dividend income is added to other taxable income when determining which band applies. A shareholder may therefore pay tax on different parts of the same dividend at different rates.

The £500 allowance is a zero-rate band rather than a deduction from total income. Dividend income within the allowance can still use part of the taxpayer’s basic or higher-rate band.

Salary and Dividends for Company Directors

Owner-managed companies often use a combination of salary and dividends, but there is no single arrangement suitable for every director.

The appropriate structure can depend on:

Company profit.
Other personal income.
Employer National Insurance.
Employment Allowance eligibility.
The director’s National Insurance record.
Pension contributions.
Available distributable reserves.
The number of employees and directors.
The director’s wider financial circumstances.

The increase in dividend tax rates from April 2026 makes it particularly important not to copy an old salary-and-dividend calculation without reviewing the current figures.

Employee National Insurance for 2026/27

For a standard category A employee, National Insurance is generally deducted as follows:

Annual Earnings	Employee National Insurance
Up to £12,570	Generally 0%.
Above £12,570 up to £50,270	8%.
Above £50,270	2% on the excess.

Different National Insurance category letters and reliefs can apply to apprentices, employees under 21, veterans, Freeport employees and other groups.

Employer National Insurance

The standard employer National Insurance rate for 2026/27 is generally 15%.

For a standard employee, employers normally begin paying contributions when earnings exceed the secondary threshold of:

£96 per week.
£417 per month.
£5,000 per year.

This cost is paid by the employer in addition to the employee’s gross salary. It should therefore be included when calculating the true cost of taking on an employee.

Other employment costs can include:

Workplace pension contributions.
Holiday pay.
Statutory payments.
Payroll administration.
Equipment and software.
Training and insurance.

Employment Allowance

Eligible employers can reduce their employer Class 1 National Insurance liability by up to £10,500 during 2026/27.

The allowance reduces the employer National Insurance payable through payroll until:

The £10,500 allowance has been used.
The employer’s qualifying liability has been reduced to nil.
The tax year ends.

Not every employer qualifies. In particular, a company where the only employee paid above the secondary threshold is also a director may be unable to claim.

Eligibility should be checked before including the allowance in a payroll budget.

National Minimum Wage and National Living Wage

The following minimum hourly rates apply from 1 April 2026:

Worker Category	Hourly Rate
Age 21 and over	£12.71
Age 18 to 20	£10.85
Above school-leaving age but under 18	£8.00
Qualifying apprentice rate	£8.00

The apprentice rate generally applies to apprentices under 19 and apprentices aged 19 or over who are in the first year of their apprenticeship.

Minimum wage compliance is based on pay and working time rules rather than the hourly rate shown on a contract alone. Deductions, unpaid working time, uniforms and salary-sacrifice arrangements can affect the calculation.

VAT Registration Threshold

A UK-established business must normally register for VAT when its VAT-taxable turnover for the previous rolling 12 months goes over £90,000.

The test is based on turnover rather than profit.

VAT-taxable turnover generally includes supplies that are:

Standard-rated.
Reduced-rated.
Zero-rated.

It does not normally include exempt supplies or income genuinely outside the scope of VAT.

The threshold is reviewed using a rolling 12-month period. It is not checked only at the end of the tax year, financial year or calendar year.

A separate registration requirement can arise when a business expects its VAT-taxable turnover to exceed £90,000 during the next 30 days alone.

VAT Deregistration Threshold

A business may generally apply to cancel its VAT registration where expected taxable turnover for the following 12 months will be £88,000 or less.

Deregistration is not necessarily automatic. The business must normally continue charging and accounting for VAT until HMRC confirms the effective cancellation date.

A final VAT liability can also arise on certain stock and business assets held at the cancellation date where input VAT was previously reclaimed.

Voluntary VAT Registration

A business below the compulsory threshold can often choose to register voluntarily.

Voluntary registration may be beneficial where:

Most customers are VAT registered and can reclaim the VAT charged.
The business incurs substantial recoverable VAT on purchases.
Large equipment, stock or startup costs are expected.
The business is likely to cross the compulsory threshold soon.
The business makes mainly zero-rated taxable supplies.

It may be less attractive where customers are mainly private consumers or non-VAT-registered organisations that cannot reclaim the VAT added to prices.

Making Tax Digital for VAT

VAT-registered businesses must generally maintain the required VAT records digitally and submit VAT returns using compatible software unless HMRC has granted an exemption.

Software should be configured to distinguish correctly between:

Standard-rated sales and purchases.
Reduced-rated transactions.
Zero-rated and exempt transactions.
Reverse charge transactions.
Imports and exports.
Amounts outside the scope of VAT.

A connected bank feed does not determine the correct VAT treatment. Imported transactions still need to be reviewed and allocated using the appropriate VAT code.

Capital Gains Tax for 2026/27

Capital Gains Tax can apply when an individual sells or transfers an asset and makes a taxable gain.

The annual exempt amount for most individuals in 2026/27 is £3,000.

The principal rates applying from 6 April 2026 are:

Gain	Rate
Individual gains falling within the available basic-rate band	18%
Individual gains above the available basic-rate band	24%
Qualifying Business Asset Disposal Relief or Investors’ Relief gains	18%
Most trustee gains	24%

The applicable rate depends on taxable income, gains, losses and available reliefs.

Companies generally pay Corporation Tax rather than Capital Gains Tax on gains arising from company assets.

Business Asset Disposal Relief

Business Asset Disposal Relief can reduce the rate applying to certain qualifying business disposals.

It may be relevant when:

A sole trader sells all or part of a business.
A business partner disposes of an interest in a partnership.
An employee or office holder sells shares in a qualifying personal company.

The rate on qualifying gains is 18% from 6 April 2026.

The conditions can be detailed and often include minimum ownership periods, employment or office-holder requirements and tests relating to trading activity.

Business owners considering a sale should seek advice before the transaction is completed rather than assuming the relief will apply automatically.

Key Self Assessment Deadlines

For the 2026/27 tax year, the normal Self Assessment timetable is:

Action	Normal Deadline
Register for Self Assessment where required for the first time	5 October 2027
Submit a paper tax return	31 October 2027
Submit an online tax return	31 January 2028
Pay the balancing payment for 2026/27	31 January 2028
First payment on account towards 2027/28 where required	31 January 2028
Second payment on account towards 2027/28	31 July 2028

The first substantial Self Assessment payment can be higher than expected because it may include both:

The balancing payment for the completed tax year.
The first payment on account towards the following year.

Sole traders should update tax estimates during the year rather than waiting until January to discover the liability.

Limited Company Filing and Payment Deadlines

A private limited company normally has separate deadlines for Companies House accounts, Corporation Tax payment and the Company Tax Return.

Requirement	Normal Deadline
File annual accounts with Companies House	Nine months after the company financial year ends.
Pay Corporation Tax	Nine months and one day after the Corporation Tax accounting period ends, for companies not required to pay by instalments.
File the Company Tax Return	12 months after the Corporation Tax accounting period ends.

The Corporation Tax payment is normally due before the Company Tax Return filing deadline.

First accounts can have different deadlines and may cover more than 12 months. Because a Corporation Tax accounting period cannot normally exceed 12 months, a new company may need to submit two Company Tax Returns for its first set of accounts.

VAT Return Deadlines

The deadline for most online VAT returns is one calendar month and seven days after the end of the VAT accounting period.

This is normally also the deadline by which the VAT payment must reach HMRC.

For example, where a quarterly VAT period ends on 30 June, the normal filing and payment deadline is 7 August.

Different deadlines can apply to businesses using annual accounting or payments on account.

How Much Should a Business Reserve for Tax?

There is no single percentage suitable for every business.

The amount required depends on matters including:

Business structure.
Taxable profit.
Other personal income.
National Insurance.
Dividend income.
Payments on account.
VAT registration and accounting scheme.
Pension contributions and other reliefs.
Allowable expenses and capital allowances.
Associated companies.

A tax reserve should be based on current bookkeeping reports and updated calculations rather than a fixed percentage copied from another business.

VAT collected from customers should normally be monitored separately from the reserve for Income Tax or Corporation Tax.

Why Accurate Bookkeeping Matters

Tax rates can only be applied correctly when the underlying financial records are complete.

Up-to-date bookkeeping helps establish:

Current turnover.
Taxable business profit.
VAT-taxable turnover.
Outstanding customer invoices.
Unpaid supplier bills.
Payroll and National Insurance liabilities.
Available company reserves.
The likely tax payment.
Whether important thresholds are approaching.

Without current records, a business may cross the VAT threshold without noticing, declare dividends without sufficient reserves or reach a tax deadline without enough cash.

Thresholds Businesses Should Monitor Monthly

VAT-taxable turnover: Review the previous rolling 12 months rather than waiting for the year end.
Sole trader qualifying income: Check whether Making Tax Digital for Income Tax will apply in a future year.
Company profit: Monitor whether Corporation Tax will fall within the small profits, marginal or main-rate range.
Personal income: Consider the higher-rate threshold and the Personal Allowance taper above £100,000.
Payroll costs: Include employer National Insurance and minimum wage increases when planning recruitment.
Dividend income: Track total dividends against the £500 allowance and available tax bands.

Common Small Business Tax Mistakes

Confusing turnover with profit: VAT registration is based mainly on taxable turnover, while Income Tax and Corporation Tax generally use profit.
Monitoring VAT only at the year end: The compulsory threshold uses a rolling 12-month period.
Treating sole trader drawings as an expense: Personal withdrawals do not normally reduce taxable business profit.
Assuming every company pays 19% Corporation Tax: The main rate is 25%, with Marginal Relief potentially applying between the profit limits.
Ignoring associated companies: They can reduce the Corporation Tax profit thresholds materially.
Declaring dividends based only on bank cash: The company must have sufficient distributable reserves.
Using old dividend rates: The basic and higher dividend rates increased from 6 April 2026.
Budgeting only for employee salary: Employer National Insurance, pensions, holiday and other employment costs must also be considered.
Assuming software makes tax decisions: Software uses the categories and VAT codes selected by the user.
Forgetting payments on account: A Self Assessment payment can include tax for two different tax years.
Leaving bookkeeping until the filing deadline: This removes the opportunity to plan for thresholds and cash requirements.

A 2026/27 Tax Planning Checklist

Keep bookkeeping records current and reconcile every financial account.
Monitor rolling VAT-taxable turnover each month.
Check whether Making Tax Digital for Income Tax applies.
Estimate sole trader Income Tax and National Insurance during the year.
Review company profit against the Corporation Tax thresholds.
Check associated-company relationships.
Confirm distributable reserves before declaring dividends.
Use the 2026/27 dividend tax rates in personal tax estimates.
Include employer National Insurance in recruitment budgets.
Check employee pay against the minimum wage rules.
Reserve VAT separately from business income.
Record all filing and payment deadlines.
Review the tax position before major purchases, disposals or business changes.

How Carter Bookkeeping Services Can Help

Carter Bookkeeping Services helps small businesses maintain the accurate records needed to monitor tax thresholds and prepare reliable information for returns and professional advisers.

Support can include:

Regular bookkeeping and bank reconciliation.
Monitoring business income and expenses.
Tracking rolling VAT-taxable turnover.
Maintaining digital VAT records.
Preparing VAT return information.
Recording payroll and employer liabilities.
Maintaining director, shareholder and dividend records.
Producing profit and cash reports.
Preparing organised records for accountants and tax advisers.
Selecting and configuring suitable accounting software.
Completing a holistic bookkeeping review of existing systems and records.

Bookkeeping support provides the underlying figures needed for tax reporting. Personal tax planning, company restructuring, complex relief claims and specialist VAT matters may require advice from an appropriately qualified accountant or tax adviser.

Frequently Asked Questions

What Is the Personal Allowance for 2026/27?

The standard Personal Allowance is £12,570. It begins to reduce when adjusted net income exceeds £100,000 and can be completely withdrawn.

What Is the VAT Registration Threshold?

A UK-established business must normally register when VAT-taxable turnover for the previous rolling 12 months goes over £90,000. A separate test applies where more than £90,000 is expected during the next 30 days alone.

What Corporation Tax Rate Does a Small Company Pay?

The small profits rate is 19% where qualifying profits are £50,000 or less. Companies with profits above £250,000 generally pay 25%. Marginal Relief may apply between those limits.

What Are the Dividend Tax Rates for 2026/27?

The rates above the £500 dividend allowance are 10.75% for basic-rate taxpayers, 35.75% for higher-rate taxpayers and 39.35% for additional-rate taxpayers.

How Much National Insurance Does a Sole Trader Pay?

Class 4 National Insurance is generally charged at 6% on profits above £12,570 up to £50,270 and 2% on profits above £50,270.

What Is the Employer National Insurance Rate?

The standard rate is generally 15% on earnings above the employer secondary threshold, which is £5,000 per year for a standard employee in 2026/27.

What Is the Employment Allowance?

Eligible employers can reduce their employer Class 1 National Insurance liability by up to £10,500 during the tax year.

Who Must Use Making Tax Digital for Income Tax?

From 6 April 2026, it generally applies to sole traders and landlords whose total qualifying income from self-employment and property was more than £50,000 in 2024/25.

When Is a 2026/27 Self Assessment Return Due?

The normal online filing and payment deadline is 31 January 2028. Earlier registration and paper-return deadlines may apply.

Review the Figures Before a Threshold Is Crossed

Small business tax planning is most effective before a registration threshold, payment deadline or major transaction is reached.

Current bookkeeping allows business owners to identify approaching VAT obligations, estimate personal or company tax and reserve enough cash before payments become due.

Contact Carter Bookkeeping Services to discuss bookkeeping, accounting software or a review of your existing financial records.

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