Income tax & NIC

Income tax & NIC

In brief

• Income tax is charged on earnings, profits, interest, rent and dividends, with rates that depend on the type of income.
• National Insurance Contributions (NIC) are charged separately on earnings and self-employed profits.
• The personal allowance of £12,570 is frozen.
• Scotland has its own income tax bands for non-savings, non-dividend income.

Income tax

Everyone has a personal allowance of £12,570. It reduces by £1 for every £2 of income over £100,000, and is lost entirely at £125,140. In England, Wales and Northern Ireland the basic rate of 20% applies up to £50,270, the higher rate of 40% to £125,140 and the additional rate of 45% above that. Scotland has its own bands and rates for earnings and pensions.

Savings and dividends have their own allowances and rates. Rental income is taxed at the same rates as earnings until April 2027, when separate property income rates of 24%, 44% and 49% apply.

National Insurance

Employees pay Class 1 NIC on their earnings, and employers pay a separate employer charge, at 15% from April 2025 on pay above a lower threshold. Self-employed people pay Class 4 NIC on profits, at 6% on profits above the lower profits limit and up to the upper limit and 2% above. Directors paid through a company may pay a mix of salary and dividends, with different NIC results.

Employment or self-employment

The way you work decides how you are taxed. An employee is taxed under PAYE. A self-employed person files a Self Assessment return and pays tax on profits. A director of a limited company is taxed on salary and dividends. The structure is worth reviewing as profits grow.

Making Tax Digital

Making Tax Digital for Income Tax applies from April 2026 to self-employed people and landlords with qualifying income over £50,000, falling to £30,000 from April 2027 and £20,000 from April 2028. Affected taxpayers keep digital records and send quarterly updates.

Ways to manage the tax

• use pension contributions to extend bands and claim relief
• claim all allowable business expenses
• make use of the allowances of a spouse or civil partner
• keep income under key thresholds where practical

Frequently asked questions

When is my Self Assessment return due?

Online returns are due on 31 January after the end of the tax year, and tax is paid by the same date.

Do I pay NIC on dividends?

No. Dividends do not attract NIC, but they are not deductible for corporation tax.

Does income tax apply to rental profits?

Yes. Rental profit is added to your other income and taxed at your rates.

If you would like to talk this through for your own situation, book a free call with our team. See also our self assessment page.