Question 1

What are the 2025-26 UK income tax rates?

Accepted Answer

For 2025-26, the personal allowance is £12,570. The basic rate is 20% on income from £12,571 to £50,270. The higher rate is 40% on income from £50,271 to £125,140. The additional rate is 45% on income above £125,140. The personal allowance tapers by £1 for every £2 earned above £100,000.

Question 2

How does Class 2 and Class 4 NI work for sole traders?

Accepted Answer

Mandatory Class 2 NI was abolished from 6 April 2024. Self-employed people with profits at or above the Small Profits Threshold (£6,845 for 2025-26; £6,725 for 2024-25) are automatically treated as having paid Class 2 for pension/benefit entitlement (£0 charge) — this includes everyone in the band between the Small Profits Threshold and the £12,570 Lower Profits Limit, who get the National Insurance credit without paying. Those with profits below the Small Profits Threshold can pay Class 2 voluntarily (£3.50/week for 2025-26) to protect their State Pension record. Class 4 NI is 6% on profits between £12,570 and £50,270, plus 2% on profits above £50,270.

Question 3

What are payments on account?

Accepted Answer

If your total income tax and Class 4 NI liability exceeds £1,000, HMRC requires two advance payments (payments on account) towards next year's bill. Each payment is half the previous year's tax and Class 4 NI. They are due on 31 January and 31 July. You can apply to reduce them if your income is expected to fall.

Question 4

Can pension contributions reduce my tax bill?

Accepted Answer

Yes, personal pension contributions receive tax relief. Basic rate relief (20%) is usually added automatically by your pension provider. If you are a higher rate taxpayer, you claim the extra 20% through your self assessment return. Pension contributions also extend your basic rate band, potentially reducing higher rate tax.

Question 5

What is the trading allowance?

Accepted Answer

The trading allowance gives you £1,000 of tax-free trading income per year. If your gross trading income is £1,000 or less, you do not need to declare it. If your income is above £1,000, you can choose to deduct the £1,000 allowance instead of your actual expenses, whichever gives the better result.

Question 6

How does Marriage Allowance work?

Accepted Answer

Marriage Allowance lets a lower-earning spouse or civil partner (whose income is below the £12,570 personal allowance) transfer £1,260 of their unused allowance to you. As the recipient you do not get extra personal allowance — instead you receive a tax reducer of £252 (£1,260 × 20%) off your income tax bill. You can only claim it if you are a basic-rate taxpayer. Tick "Receive Marriage Allowance" only if your partner transfers their allowance to you.

Question 7

How does the personal allowance taper above £100,000 work?

Accepted Answer

Your £12,570 personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000, disappearing entirely at £125,140. Adjusted net income is your income minus your gross pension contributions and grossed-up Gift Aid donations. Paying into a pension can therefore restore some or all of your personal allowance — bringing adjusted net income down to £100,000 keeps the full allowance, the so-called 60% tax trap mitigation.

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