Income Tax bands (England and NI)

The amount of Income Tax you pay in each tax year when you’re self-employed (ie a sole trader) is determined by how much income you earn above the Personal Allowance threshold and how much of your…

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Last Updated: 20th May 2022   |   Created: 17th May 2022

The amount of Income Tax you pay in each tax year when you’re self-employed (ie a sole trader) is determined by how much income you earn above the Personal Allowance threshold and how much of your income falls within the income tax bands detailed below.

The Personal Allowance is the amount of income a person can earn before they need to pay Income Tax. So, because of the Personal Allowance, some income is tax-free.

Income Tax bands for the 2022/23 tax year

BandTaxable income
Tax rate
Personal AllowanceUp to £12,5700%
Basic rate£12,571 to £50,27020%
Higher rate£50,271 to £150,000
40%
Additional rateMore than £150,000+45%

Income limit for Personal Allowance = £100,000

The Income Tax bands for Wales and Scotland are different.

Income Tax bands for the 2021/22 tax year

BandTaxable income
Tax rate
Personal AllowanceUp to £12,5700%
Basic rate£12,571 to £50,27020%
Higher rate£50,271 to £150,000
40%
Additional rateMore than £150,000+45%

Income limit for Personal Allowance = £100,000

The Income Tax bands for Wales and Scotland are different.

Income Tax bands for the 2020/21 tax year

BandTaxable income
Tax rate
Personal AllowanceUp to £12,5000%*
Basic rate£12,501 to £37,50020%
Higher rate£37,501 to £150,00040%
Additional rateMore than £150,00045%

Income limit for Personal Allowance = £100,000

The Income Tax bands for Wales and Scotland are different.

Income Tax bands for the 2019/20 tax year

BandTaxable income
Tax rate
Personal AllowanceUp to £12,5000%*
Basic rate£12,501 to £37,50020%
Higher rate£37,501 to £150,00040%
Additional rateMore than £150,00045%

Income limit for Personal Allowance = £100,000

The Income Tax bands for Wales and Scotland are different.

Income Tax bands for the 2018/19 tax year

BandTaxable income
Tax rate
Personal AllowanceUp to £11,8500%
Basic rate£11,851-£34,50020%
Higher rate£34,501 to £150,00040%
Additional rateMore than £150,00045%

Income limit for Personal Allowance = £100,000

The Income Tax bands for Wales and Scotland are different.

Income Tax bands for the 2017/18 tax year

BandTaxable income
Tax rate
Personal AllowanceUp to £11,5000%
Basic rate£11,501 to £45,00020%
Higher rate£45,001 to £150,00040%
Additional rateMore than £150,00045%

Income limit for Personal Allowance = £100,000

The Income Tax bands for Wales and Scotland are different.

National Insurance contributions

National Insurance contributions (NICs) can be payable by employees and self-employed people. NICs pay for state benefits, such as state pension, statutory sick pay or maternity leave, as well as entitlement to additional unemployment benefits where relevant.

Many self-employed people (ie sole traders) pay two types of National Insurance contributions – Class 2s and Class 4s – which is determined by how much profit they make. NICs are not payable until profit thresholds are reached.

Class 2

 2022/232021/222020/212019/202018/19
Small Profits Threshold (per year) £6,725 £6,515 £6,475 £6,365 £6,205
Rate per week £3.15 £3.05 £3.05 £3.00£2.95

From 6 April 2022, self-employed people with profits between the Small Profits Threshold (£6,725) and the Class 4 Lower Profits Limit (£11,908) will receive National Insurance credits, qualifying them for State Pension and other state benefits, without having to pay any Class 2 NICs. So, effectively, Class 2 NICs are zero-rated up to profits of £11,908. 

Class 4

 2022-23 2021-22 2020-21 2019-202018-19
Lower Profits
Limit (after which
Self-employed people
start paying
Class 4 NICs)
£11,908 £9,568 £9,500 £8,632 £8,424
Upper Profits Limit
(after which the self-employed
pay a lower rate)
£50,270 £50,270 £50,000 £50,000 £46,350
Rate between
Lower Profits Limit and
Upper Profits Limit
10.25%9%9%9%9%
Rate above
Upper Profits Limit
3.25% 2%2%2%2%

Dividend allowance

If you own shares in a company, you can receive dividend payments. Dividend payments can be monthly or every couple of months if you set up a limited company and pay yourself via salary and dividend payment (which can be more a more tax-efficient way to pay yourself).

You do not pay tax on any dividend income that falls within your Personal Allowance, which is the amount of income that you can earn each year without paying tax. Each year, you also get a dividend allowance and you only pay tax on any dividend income above that dividend allowance. The dividend allowance for the 2022/23 tax year and previous years is detailed below.

Tax yearDividend allowance
6 April 2022 to 5 April 2023 £2,000
6 April 2021 to 5 April 2022£2,000
6 April 2020 to 5 April 2021 £2,000
6 April 2019 to 5 April 2020 £2,000
6 April 2018 to 5 April 2019£2,000
6 April 2017 to 5 April 2018£5,000

Paying tax on dividends

The amount of tax you pay on dividends you receive that are above the dividend allowance depends on your Income Tax band.

From April 2022, the tax on dividend income will increase by 1.25 percentage points. The government says it will use the additional income to support the NHS, as well as health and social care post-Covid 19.

For 2022/23 you will be taxed as follows:

Tax bandTax rate on dividends above the allowance
Basic rate 8.25%
Higher rate 33.75%
Additional rate39.35%

For 2021/22 you will be taxed as follows:

Tax bandTax rate on dividends above the allowance
Basic rate 7.5%
Higher rate 32.5%
Additional rate38.1%

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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