Self Employed tax bracket changes for 2025/26

Welcome to our comprehensive guide on the latest tax changes for self-employed individuals in the UK for the tax year 2025-26. As the new tax year starts from April 6th, it’s crucial for self-employed individuals to stay informed about the tax updates that could impact their finances and business operations.

In this guide, we'll walk you through the important updates that affect how much you earn and what you pay in taxes as a self-employed individual. From changes in personal allowance rates to updates in income tax brackets and national insurance reforms, we've got you covered. So, let's dive in and ensure you're up-to-date with all the essential information to manage your finances effectively and stay compliant with HMRC.

Personal allowance refers to the amount of income an individual can earn before they start paying income tax. It will remain the same for 2025/26 tax year as bellow:

• £242 per week
• £1,048 per month
• £12,570 per year

The above personal allowance will remain the same until the 2028 tax year.

Income Tax Rates 2025:

The income tax brackets also remain the same compared to the previous year:

Below are the income tax brackets for the tax year 2025/26:

National Insurance (NI) contributions are payments made by individuals to qualify for certain state benefits, including the State Pension, Maternity Allowance, and Sick Pay. Most people pay Class 2 and Class 4 National Insurance through Self Assessment.

If your profits reach £6,845 or above annually:

You're considered for National Insurance contributions. However, if this threshold is surpassed, Class 2 contributions are automatically accounted for, safeguarding your National Insurance record without requiring additional payment.

Once profits exceed £12,570 per year, Class 4 contributions become mandatory. For the tax year 2025-2026, the rates are as follows:

• 6% on profits from £12,570 to £50,270
• 2% on profits over £50,270

If your profits fall below £6,845 annually, no contributions are necessary. Nevertheless, you can make voluntary Class 2 contributions if desired. For the tax year 2025-2026, the weekly rate for Class 2 contributions stands at £3.50.

Small businesses with employees and operating PAYE as part of Payroll are required to deduct national insurance contributions from employee wages.

National Insurance Rates for 2025

Class 1 National Insurance Thresholds

You can only deduct National Insurance from earnings that exceed the lower earnings limit.

Class 1 National Insurance Rates

The national minimum wage in the UK is the minimum hourly rate that employers must legally pay their workers. This rate varies depending on the age of the worker and whether they are an apprentice. The rates change on 1 April every year.

If you own shares in a company, you may receive a dividend payment.

You can receive some dividend income annually without paying tax.

Any dividend income within your Personal Allowance is subject to tax-free.

Additionally, you receive a dividend allowance annually. Tax only applies to dividend income exceeding this allowance.

The dividend allowance for 2024/25 was £500. This means you have to pay tax on dividend income above £500.

The tax rates on dividends remain the same in 2025/26 tax year as below:

• Previously, capital gains tax allowance was £3,000 in 2024/25, which remains the same for 2025/26. For trustees, it remains at £1,500. If a trust's beneficiary is vulnerable, e.g. disabled or a child whose parents have passed away, the allowance is £3,000. Full expensing remains permanent.
• As of October 2024, the basic rate of capital gains tax has increased from 10% to 18%, and the higher rate increased from 20% to 24%.
• The UK ISA allowance remains at £20,000 tax free savings.
• Effectively from the new tax year, if you were to pass away and leave your child your pension pot, the pension pot is taxed as income tax if they are to take it as part of the estate. There is no income tax provided the pension is added to recipients' pension pot and not drawn down until retirement age.